I just encashed Rs 18 lakh from my ESOPs. I have a Rs 52 lakh home loan and 7 lakh car loan with 16 years remaining. I earn 1.8 lakh per month. My wife earns 15 lakh pa. No kids yet. We are already investing Rs 25,000/month in equity SIPs. Would it be better to prepay part of the loan or diversify into gold funds, REITs, and hybrid mutual funds to balance my portfolio?

Ans: You are earning Rs 1.8 lakh per month. Your wife also earns Rs 15 lakh per year. Together, you have a strong income. No children yet. That gives you a big head start in planning.

You have Rs 18 lakh cash from ESOP redemption. You have:

A Rs 52 lakh home loan

A Rs 7 lakh car loan

16 years left on both

Rs 25,000 monthly SIP in equity mutual funds

Let us now build a 360-degree strategy. We will look at loan prepayment, investment options, asset allocation, and future financial freedom.

First, Understand Your Loan Structure
Let’s break down your current liabilities:

Home loan: Rs 52 lakh, likely at ~8.5% rate

Car loan: Rs 7 lakh, likely at ~9.5–11% rate

Total outstanding: Rs 59 lakh

Both loans are long tenure (16 years). That means you will pay a lot in interest over time.

Early-stage EMIs mostly go towards interest. So prepayment in the early years saves you most interest.

You are in the perfect stage to act decisively. Now let’s decide how to use the Rs 18 lakh.

Priority: Reduce Expensive, Non-Asset Loans First
The car loan is not adding any value to your wealth. It is depreciating.

Car loan interest is also not eligible for tax deduction. So, you should:

Fully repay the car loan first using your ESOP amount

This gives guaranteed savings of 10% or more per year

It also improves your credit score and cashflow

Your EMI reduces, freeing money for SIPs or other goals

Now, you are left with a home loan of Rs 52 lakh.

Second Priority: Partial Home Loan Prepayment
Home loan interest is tax-deductible, but still, it's a long burden.

If you prepay Rs 10 lakh now, you can:

Reduce total interest paid by lakhs

Reduce the loan tenure by 4–5 years

Still enjoy full 80C and 24(b) tax benefits

Create mental peace with a lighter loan

Do not try to close it entirely. But reduce principal early. That gives maximum benefit.

Keep Rs 2–3 lakh in emergency fund. You should not be cash-dry.

Building Your Emergency Corpus
Every family must keep an emergency fund ready. You and your wife are both earning.

But still, job loss or medical emergencies can disturb your plan.

Keep at least Rs 3–4 lakh in a mix of:

Sweep-in savings account

Liquid mutual funds

Short-term FD if needed

Do not invest this money in gold or long-term assets.

Your SIP Strategy – Review and Enhance
You already invest Rs 25,000 monthly in equity mutual funds. This is a good start.

You can increase it once your car loan is cleared. That frees up more cash monthly.

Structure your mutual fund SIPs this way:

35% in flexicap funds

25% in large & midcap funds

25% in multicap funds

15% in small cap funds (for long-term)

Keep 4–5 high-quality funds across AMCs. Don’t over-diversify. Don’t chase returns.

Let your SIPs run for minimum 10 years. Increase them every year by 10–15%.

Use step-up SIP feature to automate this.

Don’t stop SIPs in market falls. They work best in such times.

Should You Invest in Gold Funds?
Let’s understand the role of gold in portfolio:

Gold funds: Pros

Good hedge in inflation periods

Works well when equity struggles

Can diversify overall asset mix

Gold funds: Risks

Does not generate income

No tax benefit

Very volatile over short term

No guaranteed returns

Long flat periods

You can allocate up to 10% of your portfolio in gold funds.

But don’t treat it as a growth asset. Use it for stability, not wealth creation.

Choose gold mutual funds that actually hold physical gold. Not fund of fund models.

Avoid ETFs and direct gold unless you understand market timing.

Invest through SIPs over 5–10 years. Avoid lump sum in gold.

Should You Consider REITs?
REITs are new to Indian investors. They own commercial real estate like offices, malls.

They offer:

Regular dividend-like income

Potential capital appreciation

Diversification outside equity

But they also have some risks:

Market-linked income, not guaranteed

Office sector is under stress after COVID

High debt in some REITs

Poor liquidity in bad times

Do not allocate more than 5–7% of your portfolio in REITs.

Use monthly investments. Choose only REITs with stable rentals and strong sponsors.

Don’t buy REITs just because they give income. Look at quality of holdings.

Hybrid Mutual Funds: Should You Add?
Hybrid funds invest in a mix of equity and debt.

There are 4 types:

Aggressive Hybrid: 65–80% in equity

Balanced Advantage: Dynamically manage equity-debt

Conservative Hybrid: Mostly in debt

Arbitrage: For short-term parking

You can include hybrid funds if:

You want a smoother ride

You are close to any financial goal

You want better risk-adjusted returns

You may put 15–20% of your portfolio in hybrid funds.

Avoid hybrid funds with inconsistent track records.

Prefer actively managed hybrid funds only. Not index-based hybrid models.

Let a Certified Financial Planner pick the right ones for your needs.

Do Not Invest in Index Funds
Many investors chase index funds. They think these are safe and low-cost.

But index funds have big problems:

No flexibility to manage market crashes

Invest blindly in top 50 or 100 stocks

No risk control mechanism

Poor performance during flat or falling markets

Cannot beat inflation in sideways trends

Actively managed mutual funds do better with proper fund management.

They can shift assets across sectors and reduce downside.

Use only regular plans through CFP-certified Mutual Fund Distributors (MFDs).

Do not invest in direct plans unless you review funds monthly and have market knowledge.

Direct plans have no support. No periodic portfolio review. No tax harvesting support.

Paying 0.5–1% to an expert is worth the peace of mind.

Tax Efficiency of Mutual Funds
Use these rules for future redemptions:

Equity Mutual Fund: LTCG above Rs 1.25 lakh taxed at 12.5%

Equity MF STCG taxed at 20%

Debt Mutual Funds taxed as per your slab

Plan redemptions carefully. Spread over financial years when possible.

Let your MFD/CFP help with tax harvesting strategies.

Other Wealth Areas to Check
Life Insurance
Take term insurance of Rs 1–1.5 crore

Cover should be till age 60

Do not invest in ULIPs or endowment policies

Health Insurance
Take family floater of Rs 10 lakh at least

Add a Rs 25 lakh top-up cover

Use group cover from employer only as backup

Will and Nomination
Prepare a will

Nominate both mutual funds and demat accounts

Register your will for legal ease

Finally
You are doing many things right already.

You are earning well, saving, and building equity exposure.

Use this Rs 18 lakh wisely. Repay the car loan. Part-pay your home loan.

Keep some emergency cash. Then invest more in hybrid, equity, and gold funds.

Use gold funds and REITs only for diversification. Don’t depend on them for growth.

Continue SIPs through regular funds advised by CFP-led MFDs. Avoid direct and index funds.

Build portfolio reviews every 6 months. Focus on risk-adjusted growth.

You can build a strong financial future with balance and patience.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment