Should I redeem my mutual fund investment to pay off ongoing loan EMIs or let my investments grow?

My wife and I (both 30, professionals in NCR) earn Rs 3.6 lakh permonth but feel stretched due to heavy EMIs. I repay Rs 44,000 for an education loan and Rs 30,000 for a car loan. She has a Rs 10 lakh wedding loan, Rs 6 lakh education loan, and a Rs 30 lakh plot loan (Rs 30–35,000 EMI). We have no emergency fund. I hold Rs 30 lakh in mutual funds; she just started working. Our monthly expenses include Rs 30,000 rent, Rs 10–15,000 groceries, and other essentials. We’re seeking advice on managing debt, building a buffer, and starting her investments—should I redeem part of my portfolio to ease the burden or hold tight?

Advice by Akhil Rathi, Head – Financial Advisory at 1 Finance

Liability planning is an important part of overall financial planning, yet many people tend to ignore it, which can negatively impact both cash flow and net worth. A strong financial plan must include emergency planning, where you maintain savings equal to 3–6 months of essential expenses, including EMIs, rent, groceries, and insurance premiums. This ensures you are financially prepared for unforeseen situations. Along with this, it is equally important to have adequate health and life insurance to safeguard your family’s financial security.

For managing your loans, start by listing each one with its outstanding amount, remaining tenure, EMI, and interest rate. Identify the loan with the highest interest cost and prioritise closing it, either by increasing the EMI or prepaying through your mutual funds. Do not rely only on interest rates—if most of the interest on a loan has already been paid, prepayment may not be beneficial. Instead, focus on loans with both high interest rates and high cumulative interest costs, as closing these will save you more in the long run compared to keeping the funds invested.

 In conclusion, the key is to strike a balance between debt repayment, maintaining an emergency buffer, and continuing investments. You could consider redeeming a portion of your mutual funds to prepay high-interest loans, which will reduce financial stress and interest outgo, while keeping enough invested to benefit from compounding. Simultaneously, start building an emergency fund covering 3–6 months of essential expenses to safeguard against unforeseen situations. Prioritise health and life insurance, and gradually introduce your wife to systematic investments once her cash flow stabilises. Thoughtful planning now ensures financial security and reduces stress in the long run.