Can I use ₹ 40 lakh from the proceeds of the flat sale for my child’s education and the rest for a second home loan?

I am planning to sell my flat and want to use a part of the proceeds for my child's education. My question is, can I use around ₹40 lakh for my child's education and use the rest for a second home loan?

Raj Khosla, Founder and CEO of MyMoneyMantra.com

You can use the proceeds from the sale of the apartment as you wish, as long as the capital gains tax is paid. The remaining amount can be used sensibly to minimize the amount of the mortgage for the second home.

Alternatively, you can set aside a portion to make the minimum down payment for the second home loan and invest the rest in a mutual fund that can yield pre-tax returns of over 12%. On the other hand, it is not advisable to take a high home loan with monthly instalment (EMI) at an interest rate of around 9% when the investment can only yield pre-tax returns of around 10% or less.

It is up to you to decide whether you are able to afford a higher EMI on a second home loan with a portion invested in the market/mutual funds or you would prefer to keep the EMI payments as low as possible without making any investments from the proceeds of the home sale.

However, if you take advantage of a capital gains tax exemption, it is a no-brainer to reinvest the desired portion of the proceeds in the purchase of a second home.