Invest or prepay home loan?

I took my first home loan around 2011 to buy a flat in Bangalore, I kept the loan amount to around 30 lakhs and rest of the money i pulled up from my PPF accounts, liquidated our FDs and borrowed from my dad and dad-in-law. 

The strategy that I followed during that time, was to immediately start pre-paying the money that I borrowed from Dad and Dad-in-law and once that was over I continued paying my home loan. Now, it was the time when I dad was retiring from his Bank job and we felt need to 3BHK as i wanted my parents to stay with me. 

It was a easy choice, we just wanted to move in a 3BHK, however the question was to rent or to buy? Well, this lot of people have this on top of their minds, however i will keep this topic for another blog post. But for now, would say we decided to buy a house. 

And, that's when I realized I wasn't doing right paying off my home loan which was at rate of 9%. Why? The reason is simple, I wanted to buy a property again and I had no money to give my contribution as only 80% could be funded by banks or financial institutions. 

This is when I made decision not to pre-pay loans, for 

• This is the cheapest form of money that you can borrow in India today. All personal loans, credit cards, car loans etc. are much more than what home loan provides. 
• You have the benefits on interest payments and principal can be shown in 80C, which no other type of loan has
• You should build your own corpus that you can use to pre-pay anyday you want. But you can use it for any emergencies you may need. I am talking about emergency funds and the equity fund investments here (refer buckets of money), which can give you over 12% tax free return over years and far better than paying off your 9% home loan. 

Well, luckily I bought that 3BHK and could arranged the funds, thanks to my dad as I could again borrow from him having paid back my earlier borrowings. And as well timely sale of my 2BHK which gave me comfortable position to move into a flat that is my present Home now.

So, I would anyday suggest to start investing the money than pre-pay loan. However, if you are not really comfortable with the qunatum of loan that you had to take, would suggest to clear off part of it but don't put all your money to pre-pay it.

Hope, that makes sense to you as well.

PS: In case you have picked up a smart home loan product, then the dynamics of that is a bit different there and hence I have covered this separately in Invest or prepay when you have smart home loan.