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Unmanageable EMIs? How to cope

November 24, 2008 13:18 IST
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How do you cope with a home loan EMI that's becoming unmamanageable due to various reasons? Can going for a personal loan to pay home loan installments a good idea? If not, then what should you do in such a situation?

In a chat with Get Ahead readers on November 20, financial planning expert Anil Rego answered these and several other queries related to mutual fund investments, financial planning and how to cope with financial distress.

For those of you who missed the chat, here is the unedited transcript.

prashant asked, i have plan to buy a residential flat should a wait or should i proceed. what you suggest regarding this matter

Anil Rego answers, Beyond a point, one need not try to time the market while purchasing a house for your own use. However, these are times when liquidity has been very difficult for real estate companies. Hence, I would suggest wait for some correction. The good news is that some of this has already happened with many leading developers also reducing prices. I would wait for 1-3 months. If you are able to get a 15-20% lower rate than before, just go ahead and buy your flat.

san asked, i want to save minimum amout (500/-)for myself monthly. can you guide me where to invest and have maximum return. I am 21 years old.

Anil Rego answers, I would suggest you invest in a mutual fund SIP. Since you are starting after the market has fallen significantly, it will deliver you good returns. Considering your age, you can take some amount of risk. However, look at a 3 year cycle from here. If you are unable to look at a long term cycle, you can use an RD into a bank FD for a short term need.

anu asked, i can save very minimum amout (500/-)for myself monthly. where can i invest to take assure & maximum return. My age is 30 years.

Anil Rego answers, Unfortunately, you get good returns only if you can take risk. For a safe investor, you can look at a bank fixed deposit (if you are not in the taxable bracket), a liquid mutual fund (if you are in the higher taxable tax brackets). If you are willing to take some amount of risk, you can use a balanced fund through the SIP mode (monthly investments). The SIP mode will help reduce your risk.

Rums asked, hi! I have taken a home loan for 18Lac from LIC. Due to escalation of raw materials prices I had to take personal loans from other banks for 4lacs. Now my EMIs have become unmanageable. When I had taken the home loan I was single. Now I am married and my wife is also earning. Can you suggest me a solution to reduce my EMI monthly burdern.

Anil Rego answers, One way of financing the same, is to move your personal loan into a home loan. This would have a lower interest rate and also a longer period and hence the EMIs would be significantly different. This may not be the best time to sell your house and hence I am not suggesting this option. However, do evaluate the impact of letting out the house in case you are able to get a decent rent. The advance can be used to repay some bit of the personal loan as well, but may go into the rented house you move into. In most cases, we have found that letting out the house you own; and staying in a rented house does provide you with tax benefits which can cushion your outflows by increasing your take home. If you are not able to do the above, then unfortunately you do have a problem and need to take drastic steps resulting in cutting down your standard of living. I would like to suggest this as a learning for others as well - do not go in for your house unless you are able to take care of EMIs. Staying in a rented house during that period can be a much better option. Also, keep some buffer so that in case some factors do move against you, so that there is still some margin of safety for yourself.

Manjula asked, i have two crore rupees but don't how to invest

Anil Rego answers, I would suggest a detailed financial planning. Evaluate your needs and then invest. Use a diversified set of options. A combination of low risk and high risk avenues can be used. When we do financial planning, i would look at taking care of the following four quadrants: (1) Part of the capital in safe long term investments like Govt Bonds, Low Risk Debt Funds and Real estate (2) High Risk - High Return like equities (3) Liquidity like bank FDs or Liquid Mutual Funds and (4) Protection for your family through life insurance. You are in a good situation, do take advantage of this. Even if you invest this in low risk avenues, you can grow this by 8-10% post tax. If you dont, inflation would eat into your capital.

Gaensh asked, In current market scenario, I am thanking to invest approx 20 lacs rupees in aboard education. This investment is done from taken the loan from bank. How munch it is flexible.

Anil Rego answers, This is a good option to take advantage because the repayments starts only after the completion of the course as per most banks. Since you end up paying through monthly Equated Monthly Installments (EMIs) even after the completion of the course, this is the easiest on your pocket and does give you some time. I wish you all the best in your course.

sammy asked, Sir, i wanna invest in some good ULIP Plan with an annual premium 18000 - 24000

Anil Rego answers, This maynot be the right forum to get into specific companies as we would do on a one on one interaction. Let me suggest how to go about this investment decision. Do compare the upfront charges, the Fund Management Charges(FMC) and also the past returns of the funds of the companies. I would like to point out that one should not be investing in a ULIP if your time horizon is less than 7-8 years. Also choose a ULIP where the FMC is lower. This would ensure that in the long term, your charges could become even lower than a mutual fund + term cover. This is true because, the FMC, though a smaller number is computed on the accumulated fund value. This will become a significant charge if you look at it in the long term.

Sam asked, which is the best market to invest now ? is it Deposits in Banks , Gold or Shares or Mutual Funds ?

Anil Rego answers, It depends on your risk appetite. I would suggest diversifying into all of these avenues depending on your risk appetite. You can invest into Mutual Funds through a monthly SIP. Deposits in banks would provide you with liquidity. Invest in equities only if you have the aptitude and are able to track the same regularly. Would like to mention again that though equities could deliver the best returns amont the asset classes it is risk and also provides best returns in the long term.

manoj panchal asked, i want to be a rich manoj

Anil Rego answers, Manoj, that is true for all of us. What I have leart in my own investing over the years- this comes by disciplined investing over a period of time. Time in the market delivers better returs than timing the market as per emperical studies. Set aside a certain percentage of investments into diversified avenues depending on the risk, liquidity adn your needs. Over the years you will not imagine how this can grow.

jk asked, If I want to make 1 crore after 10 years, how much should I save monthly and where to invest?

Anil Rego answers, If you assume a 12% return, you need about Rs 43,471 per month. If you get about 15% return, then you need Rs 36,335 per month. If you can afford to take risk, then a SIP into mutual funds is one of the best options. let me give you an example. someone who has invested Rs 10,000 per month for the last 10 years in an SIP has seen returns of about Rs 38 - 63 lakh even in a market that has fallen by over 50% from the peak. if one had exited at a peak, the value could have been as high as 1.4 cr and in a median market, the return would have been rs 1 cr. The message that I am trying to convey is to assume about 15% return and if markets move better than you expect (which is possible since you are starting from a low market) you can do much better. Go ahead and build your crore. However look at your risk profile. If you cannot take risk, diversify. You may not hit a crore, but you will probably take care of your needs in a better way.

Jauhari asked, Is FD in banks better than buying Mutual funds, shares?

Anil Rego answers, From a low market, Equity Mutual funds are likely to deliver better returns. Do invest in a diversified manner based on your risk appetite.

Hari asked, Hi Anil, Pls suggest me a good investment mode, I can set aside 6 lakhs a year (policies, rd, NSC , PPF) all done already

Anil Rego answers, It appears you have not taken risk. This is a good time to start. Invest into an SIP in an equity mutual fund. I am not sure how much you have built up already as capital. If this increases your risk substantially, then use balanced funds or partially invest into debt mututal funds / recurring deposit in a bank.

Vinod asked, Hi Good Afternoon Anil. May I know will this be the best time to enter Share Market, I mean invest in shares. Vinod

Anil Rego answers, It is impossible to predict the exact bottom, so spread out your investments in tranches, especially when markets fall sharply. However do use large cap shares and invest in defensive sectors. Also dont expect the market to run up sharply immediately. It could take upto a couple of years.

tarun asked, hi! i have sip of rs 4600 in different mf schemes.I have to stop them or go forward with the same amount.

Anil Rego answers, Pls do not stop the sip. The precise reason for doing the same is because it continues to invest on market falls.. these could be among the best sip installments. We follow a contrarian approach to investing. At the best times to invest, past data may not be the best.

amardeep asked, in these days where u think one should invest.A working class guy with 15k to save in i should distribute this 15k

Anil Rego answers, I would break up about a third into liquid stuff, about a third into equities and balance into building long term assets(like for downpayment of a real estate purchase). I have given details of the first two forms in an earlier reply.

Intellivestor asked, Will home loans get cheaper in the next few weeks? Which are the cities in India that one can look at, to invest in a home / apartment?

Anil Rego answers, WE believe that interest rates could fall due to lower inflation. This is positive to most of us.

Kiran asked, My portfolio shows 60% loss. What would you suggest me to do now?

Anil Rego answers, Pls do a portfolio review. If you are well diversified, it is too late to exit and wait out this difficult period. If you can afford to invest, pls invest in an SIP over the next 2 years to try and average out these losses. If it is diversified, there is nothing to be worried about.

satish asked, Hello, sir, I have invested 25 Lacs in Equity Diversified Fund Namely JM Emerging Leaders,Tata Growing Economy Infra. Fund, SBI Bluechip Fund & Reliance Growth Fund. Almost 65% loss in my portfolio. What is the better step to get my principal amount? Please suggest?

Anil Rego answers, Some of the funds are sectoral funds liek Tata GE Infra fund. Look a the past performance over the last 1 year and if funds have significantly underperformed move it into a large cap fund. Blue chip funds are likely to do better in the next 2 years.

Rajendra asked, I am investing in MF monthly. but I think that it is not enough for me to start my business after 5 years. How I make a good sum after 5 years. I am looking for a positive reply

Anil Rego answers, When you feel that the money you need to set up is large, you need to take some risk. At least you can try to achieve it. The monthly SIP suggested earlier into equities could help. What would help you is also you are starting from a low market. I have separately provided more details on this in earlier replies.

Sankaran asked, I have invested in MFs thru SIP for past 3 yrs, increasing every year. my total investment is 2.5 lakhs and the current value is 1.5 lakhs. I have 11k SIP attached now(2k sun. select midcap, 1k each in rel. equity and vision, 5k in magnum tax gain, 1k magnum contra, 1k dslbr tiger). The mutual fund comes around 50% of my total portfolio (in terms of investment, not value as of now). the rest money is invested as FDs.Should I continue with the SIP or just discontinue with the SIPs and hold the existing fund units? Pls suggest me.

Anil Rego answers, Restructure your overall funds into 10-15 good performing funds. (look at 3-5 year returns rather than just 1 year returns). Since you have invested at higher index values, do continue your SIP at current lower stock prices. Like I mentioned earlier, the reason for doing the SIP is to invest into markets when they are down.

Kiran asked, If I have surplus amount, would you advice me to repay my loan or invest in the current market?

Anil Rego answers, I would try to lower the loan; and use the lower EMI into investing through an SIP. The other alternative is to partially invest and partially repay the loan. However, do spread out equity investments over a period so as to lower your risk.

ashishrana11 asked, Do u think kisan vikas patra is a good investiment option.? Do we need to pay tax on the interes earned from KVP?

Anil Rego answers, Unfortunately, an option that gives interest like the bank fixed deposit, govt bonds, KVP, etc require payment of tax on the returns. If you are in the 30% bracket, you need to look at tax efficient options like the FMP in a mutual fund. There are FMPs that invest only into bank deposits and these could be used by you.

mayur111 asked, Sir if i want to invest 150000 for tax saving... which instrument i should go for...NSC LIC FD PPF OR MF... PLZ GUIDE SIR

Anil Rego answers, I would suggest a combination of PPF, Insurance (if you need life cover), ELSS Mutual Fund. One can also use NSC/Bank FD if you are in the lower tax bracket since their returns are taxable.

as asked, people say that in the long term equities give good returns. say in a period of 10 years what is the overall percentage gain one may expect...given past performances?

Anil Rego answers, I have given an example earlier. Pls do spread out your investments to lower risk.

Anil Rego says, Thank you for the overwhelming response. I have tried to answer different types of questions for your benefit. You can mail me at since many queries could not be answered for paucity of time.

Anil Rego is the Founder and CEO of Right Horizons, an Investment Advisory and Wealth Management firm that focuses on providing financial solutions that is specific to customer needs.
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