Should you take a Loan to Invest in Mutual Funds?

Short Answer

Borrowing money for investing in mutual funds never really pays off. Its not the right thing to do given that mutual funds returns would not provide sufficient returns in the time which your loans have to be paid back.

Detailed Answer

Dear Friends,

My knowledge about investing is close to nothing. Successfully ran a e-learning business for the last 10 years, as my small business clients are out of business or reducing expenditure, I’m out of business.

I have some debts too. Now, I have a property( my last asset) on which I’m borrowing 20 lakhs for 11 month period.

Purpose: to start a small venture which gives me a decent return.

However, I require INR 5 lakhs to be invested on business now, and the business may require some pumping in for marketing and sales in later stages.

Could you guys kindly advise where should I invest my remaining money of INR 15 lakhs (WHERE AND HOW). I’m considering mutual funds( as they provide decent returns and it doesn’t have a lock-in period). Could you add an advice on how to vigilant in this present turbulent times too?

Monthly payout as interest for the amount borrowed will be 40k only. My business returns + mutual funds income = should take care of my monthly expenses( interest + my expenses) and growth.

As my business grows, then there shouldn’t be problem. Kindly suggest as I can’t afford to make mistakes at this juncture ( though my mindset is always ready to take calculated risks). I look forward to your valuable suggestions.

However, someone suggested the correctly ideology would be to not be in favour of borrowing money for investing on any market as investment is a risky option. No one gives you guarantee of returns in the form of profit on the money markets. So, you need to invest with your own money and if you have some other sources of permanent income. Is that correct? Do let me know.

Tagged With: loansmutual fundsinvest in mutual fundspersonal loan
Categories: Investment
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Discussion (2)

    Hi, your suggestion seems to be good but only if a person has surplus money. Here the question is: whether loan amount should be invested in mutual funds? Do you really think a person should increase his loan liability and then start investing in mutual funds? I mean, won't that increase his overall financial burden? The burden of EMIs including high interest. Then, what if he doesn't get adequate returns on his investment? This shall further add to his financial burden. What are your views on it?

    Hey,why are you borrowing money to plan investments.You might be paying a high interest on your loan, so the EMI (interest+principal) repayment shall increase your overall financial burden. Taking loan for business seems fine.But,borrowing for investing in mutual funds, that too such a big amount seems a bit odd. Kindly, analyse different factors like interest paid on loan that has to be done on monthly basis. Also the, interest that you shall receive on investment is not sure(not fixed) and you can earn that only if you invest for longer duration. So, before taking any decision just check your risk horizon and needs. If your business grows, you can anyways start investing regularly.

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