I am a 40-year-old IT professional and have bought a house for Rs 1.5 cr. Should I opt for pre-EMI, full EMI, or fund it using my equity portfolio?

I am a 40-year-old IT professional. I recently booked an under-construction flat in Bangalore for Rs 1.5 crore, with possession scheduled for December 2028. This is my first property. To date, I’ve paid Rs 50 lakh using redemptions from my equity mutual funds. I’ve secured a loan offer from a bank for Rs 1.12 crore at an interest rate of 8.45 per cent. I also have sufficient funds in my equity mutual fund portfolio to cover the remaining amount. Currently, I continue SIP investments of Rs 1.2 lakh per month. My key financial goals include funding my child’s higher education and marriage, as well as securing my retirement, which is 14 years away. I have no liabilities at present. Should I opt for pre-EMI, full EMI, or redeem my equity portfolio to fund the house entirely? Additionally, how can I utilise tax exemptions under Section 54F?

(Name withheld upon request)

Reply by Niyati Shah, Vertical Head - Personal Tax at 1 Finance

When making significant financial decisions, such as purchasing a home, balancing cash flow with long-term goals is vital. Opting for the pre-EMI option during the construction phase can help maintain liquidity, especially when managing both rent and loan commitments. This delays full EMI payments until possession in 2028, easing your financial burden during this period.

Given that equity investments have historically delivered returns of around 13 per cent annually, it’s advisable not to redeem these investments to fund your home. Instead, taking a loan at 8.45 per cent interest allows you to minimise opportunity costs, as your equity portfolio could potentially yield returns 4.55 per cent higher than the loan interest rate. If you choose to use 50 per cent of your Public Provident Fund (PPF) to partially fund your home, you could reduce the loan amount by Rs 10 lakh, lowering EMIs and saving around Rs 10 lakh in interest over the loan tenure.

Regarding Section 54F, the exemption requires property construction to be completed within three years. Since your property will not meet this timeline, you won’t be eligible for this exemption.

Maximising Net Worth Over 14 Years:

Retirement Planning: Take full advantage of tax-saving instruments like EPF and ensure adequate retirement savings.
Equity Investments: Maintain your equity portfolio for long-term goals, as this will provide substantial growth over time.
SIP Allocations: Periodically review SIP allocations with a financial advisor to ensure alignment with your financial goals and risk tolerance.

By blending disciplined savings, strategic debt management, and sustained equity investments, you can maximise your net worth while balancing current needs with future aspirations.

(Views expressed by the tax/investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)