Financial Planning: Malhar Majumder

I am 32 years of age. My sister is getting married next month and I need Rs 10 lakh for the same. My monthly income is around Rs 65,000, of which expenses amount to Rs 25,000. I am currently servicing a home loan (monthly loan outgo is Rs 22,000). I pay a premium of Rs 6,000 towards my term insurance policy and invest Rs 5,000 each in mutual funds and Public Provident Fund (PPF). I have Rs 2 lakh in cash. As of now, the mutual fund corpus amounts to Rs 2.5 lakh. As for the remaining amount, I have considered taking a personal loan, charging many of the expenses to my credit card and taking a loan against my wife’s jewellry. Which of these options works out the best? Can I take a loan against the PPF balance?
As you haven’t mentioned the age and the closing balances of your PPF account over the last three years, it is not possible to determine your loan eligibility. Therefore let’s not consider this option.

You will need Rs 5.5 lakh (considering you liquidate the entire MF balance). The gap will have to be bridged by taking a loan. The key is to minimise the quantum of loan and save on the final interest outgo.

You have listed three options. Let us analyse each of them:

1. Charging expenses to your credit card: With around 40 per cent yearly interest on revolving credit, this is the costliest option. Thus, a strict no. You may use your credit card whenever you are making a purchase, though. However, judiciously pay off in entirety before the due date. This strategy will help in deferring your payment cycle and save money. 
    
2. Personal loan: Since taking a personal loan from banks is costly, keep this as a last resort. If you are taking it from your family or friends, draw up a mutually agreed repayment schedule at the outset itself. 
    
3. Loan against jewellry: You may be able to get a loan amounting to around 50-60 per cent of the jewelry’s value. It’s easier and cheaper than a personal loan. However, consider this only if you are thoroughly satisfied it is the cheapest, fits your bill and is sufficient to meet the entire deficit.

You can consider the following options as well:

a) Using ‘home equity’ (commonly known as top-up loan): The top-up loan product is available in India for existing bank customers willing to take a loan by mortgaging their property. Generally, the maximum amount disbursed under this scheme is a certain percentage of the market value of the property, minus the outstanding loan against the property.

b) Using informal credit line: The informal credit line is an innovative way of tackling such situations. The assumption is that you won’t need the entire Rs 10 lakh at one go. Draw a detailed expense plan as well as tentative dates when each of them will be incurred. The expenses must be suitably categorised into separate classes like ornaments, garments, furniture and so on. Once you know your expense schedule, you will realise that some of the payments can be deferred by negotiating with the vendor. Here, the idea is to make the purchase at the beginning of the billing cycle and pay before the due dates (the gap is generally 45-50 days).