Busting 3 major financial planning myths
Financial planning is complex and dynamic in nature and that is the reason why there are certain misconceptions and myths around it that people tend to believe easily. Carrying these myths along would certainly hamper your finances. Therefore, it is important to get rid of these myths and make your financial life more purposeful. Following are the three biggest financial planning myths which you should avoid believing in:
Myth #1: Pay off your home loan at the soonest
As we said earlier, financial planning is dynamic in nature and thus, there are different views towards it. Some of the financial planners stress on getting rid of debt as soon as possible. They believe that you are paying a huge cost in terms of interest by carrying them for long. Though, they are right to some extent, but not if it is a home loan.
First of all, home loan is one of the cheapest loans available in the market. Secondly, it also comes with tax benefit, where you can claim a deduction of Rs 2 lakh towards interest payment and Rs 1.5 lakh of principal payment under section 80C. Hence, with this, you can comfortably carry this loan.
However, a question arises as till when you should carry this loan?! Remember not to take a home loan for more than 15 to 20 years. Even though the Equated Monthly Installments (EMI) seems to be low the cost you pay in terms of interest is high.
All in all, if you have extra surplus remaining, it is always better to invest in mutual funds and at the end of the loan tenure, you will end up recovering the interest cost that you paid for the loan.
Myth #2: Debt funds are risk-free
Investors must understand that nothing in this world comes risk-free. You as an investor, carry a risk in some or the other way. Here, you might argue that investment in government securities is risk-free. Indeed, it is risk-free. But it is risk-free in terms of capital. Investing in them would protect your capital. However, due to low rate of returns, you might face inflation risk. Therefore, there is no such thing as risk-free.
Hence, you need to be prudent, even while investing in debt funds. Even if they are safer as compared to equity funds, they are not risk-free. So, it is important on investors’ part to invest in debt funds based on their financial goals and risk profile.
Myth #3: Retirement planning is all about retirement corpus
There are many financial planners who focusses more on achievement of retirement corpus. But, achievement of retirement corpus is not the only thing that consists of retirement planning. Apart from retirement corpus, people also need to think of what are their plans once they get retired.
All of us are used to working prior to retirement. Once we retire, we don’t have anything to do. This feels nice for a few days but leads to frustration afterwards. Therefore, it is important to plan what you are going to do in the retirement period. Maybe you can pursue a hobby or can engage yourself in philanthropy. So, retirement planning is not just about retirement corpus but also, about what you would do during retirement.