Can I use mutual fund gains each month to pay my home loan?

Published: November 26, 2021 at 7:00 am

A reader asks, “I am a 27-year-old NRI with a current mutual fund portfolio of Rs. 12 lakhs. We want to buy a home. My father wants me to take out a loan immediately. I want to build my MF portfolio to 40 Lakhs within the next three years. Then, take out a home loan for Rs. 50 lakhs and use the profit from MF to partially pay back (at least 50% – say 25K) the monthly loan payment. And At the same time, use my regular income to increase my MF portfolio”.

“Is it possible to book a profit of at least 25 thousand every month after I build my MF portfolio of 40 Lakhs? (Except during market downturn) Am I underestimating my returns or overestimating?”

Technically it is a feasible proposition. Half the EMI of an Rs. 50 lakh loan can be serviced by withdrawing Rs. 25, 000 from a mutual fund corpus of Rs. 40 lakhs. This withdrawal can be made only if the monthly return is only 0.5% or more.

However, any market-linked product withdrawal will involve some gains and some principal, so that continuous withdrawals will erode the corpus. Even if you decide to withdraw in such a way to keep the value close to Rs. 40 lakhs at all times, the time elapsed is an equivalent erosion. There is no way around this!. Also, see: How to redeem only profits from mutual funds?

However, just because something can work does not mean we should choose it. By your estimate, you are in a position to grow your portfolio from Rs. 12 lakhs to Rs. 40 lakhs in three years with additional investments and market gains.


Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!



    🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

    This means you should handle the full EMI from your salary and continue investing in mutual funds (at a lower rate). At 27, we agree with your father that this is what you should do.

    Using the accumulated corpus to pay off your home loan when you can easily do it with your salary is both a waste of time and wealth. That corpus should be nurtured with more investments and allowed to grow untouched unless there are emergencies.

    We recommend working with a SEBI registered fee-only advisor to determine how much you need to invest for financial independence and other goals. Then find out how much your investment will be affected by the home loan EMI.

    As discussed recently – When should I get a home loan? How do we decide this? – it should be ‘ok’ as long as you can continue investing at least 10% of your take-home pay for your long-term goals while servicing your loan.

    In summary, as long as we can reasonably balance EMIs with long-term investments, it would be better to service a debt early in life, and jack up investments later when our income is higher and make up for the lost time. It is not advisable to redeem from a market-linked corpus for immediate use. It is best left alone to grow untouched for as long as possible.

    Do share this article with your friends using the buttons below.

    🔥Enjoy massive discounts on our courses and robo-advisory tool! 🔥
    Use our Robo-advisory Excel Tool for a start-to-finish financial plan! More than 1000 investors and advisors use this!
    New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
    • Follow us on Google News.
    • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
    • Join our YouTube Community and explore more than 1000 videos!
    • Have a question? Subscribe to our newsletter with this form.
    • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

    Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!



      Explore the site! Search among our 2000+ articles for information and insight!

      About The Author

      Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
      Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
      Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
      Our new book for kids: “Chinchu gets a superpower!” is now available!
      Both boy and girl version covers of Chinchu gets a superpower
      Both boy and girl version covers of Chinchu gets a superpower.
      Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
      Feedback from a young reader after reading Chinchu gets a Superpower (small version)
      Feedback from a young reader after reading Chinchu gets a Superpower!
      Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
      Buy the book: Chinchu gets a superpower for your child!
      How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
      Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
      We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
      About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
      Connect with us on social media
      Our publications

      You Can Be Rich Too with Goal-Based Investing

      You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
      Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

      Your Ultimate Guide to Travel

      Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)