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Nirav recently received a 5 lakh half-yearly bonus, and he is now in two minds whether to prepay part of his home loan or whether to invest the money. 

In such cases, it is most often suggested that the person use the money to invest instead of prepaying the home loan. This is mostly, first, because of the taxation benefit. Secondly, since the home loan rates are low if you compare them with long term equity-linked investments, most assume investing the money would be a better strategy to follow. 

Yes, that is definitely a thing to consider, said Deepak Krishnan, financial planner at Mangrove Wealth, adding. “Home loans are within the window of 7 to 8% and for equity investments you could get a minimum 11% returns."

This is an excellent strategy to follow in the bullish market, but same can turn disastrous in the bearish market, said Krishnan. In that case, the investor will end up with a depressed portfolio. 

What should Nirav do? 

Under no circumstances, one should hold on an financial liability or hold a loan if there is an opportunity to prepay it early, opined Mehta. 

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