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I work in an IT firm company with an average 10% annual hike. Currently I save around 35,000 rupees per month. My family has a debt of 19,00,000 rupees. For the next 5 years I do not have any major money requirement.

Shall I invest my savings in equity/other investment options which can outgrowth the interest of the loan to repay it or I simply repay the debts or a mix of both? What should I need to do?

Edit: The loans were taken in multiple phases with different rates. On an average it is 11%.

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    What is the risk free return in India? In the US, it's lest than 11%, and I'd advise to pay the debt. It's like a guaranteed 11% return. – JTP - Apologise to Monica Jul 9 '15 at 21:59
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You didn't mention how much is the interest rate of your debts.

It is a very simple rule.

% profit > % loss

If you think you can make more money by investing (the best way you can) in spite of having debts then go ahead and invest.

% profit less than % loss

Else, if you donno what you're doing and can't make sure you earn more than what you're paying off for interest then may be you should focus on clearing up the debts first.

You can read more about similar topic discussion here


Now, that you've presented the interest rate of your loans i.e. 11% which is your average, then I suggest you to clear up the high interest rate loans first i.e. which are above 11% because it is very difficult to make an investment and get returns more than 11% of what you invest.

What ever be it, now that you won't be having big events in the coming 5 years, I suggest you to clear up all your loans and stay debt free i.e. tr to become stable and tension free. You know, because you can't run away anywhere with all those loans up on your shoulders, you HAVE to clear them today or tomorrow. So, now that you're free (in the next 5 yrs) and burden less, so why not clear them up today?

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Like azam pointed out, fundamentally you need to decide if the money invested elsewhere will grow faster than the Interest you are paying on the loan.

In India, the safe returns from Fixed Deposits is around 8-9% currently. Factoring taxes, the real rate of return would be around 6-7%. This is less than what you are paying towards interest.

The PPF gives around 9% with Tax break [if there are no other options] and tax free interest, the real return can be as high as 12-14%. There is a limit on how much you can invest in PPF. However this looks higher than your average interest.

The stock markets in long term [7 Years] averages give you around 15% returns, but are not predictable year to year.

So the suggest from azam is valid, you would need to see what are the high rate of interest loans and if they accept early repayment, you should complete it ASAP. If there are loans that are less than average, say in the range of 7-8%, you can keep it and pay as per schedule.

protected by Chris W. Rea Nov 8 '16 at 21:10

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