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‘FD todu ya loan lu?’
This is a common question in case of emergencies. Kavita needed ₹5 lakh for her father’s surgery. She could either break her ₹6 lakh fixed deposit (earning 7% ) or take a personal loan at 11.5%.
Particulars | Option 1: Break FD | Option 2: Personal Loan |
Amount Needed | ₹5,00,000 | ₹5,00,000 |
Source of Funds | From ₹6,00,000 FD | Personal Loan @11.5% interest p.a. |
Maturity Value of FD (if not broken) | ₹6,42,000 | - |
EMI (on ₹5 lakh @11.5%) | - | ₹44,315/month |
Total Interest Paid (1 year) | - | ₹31,780 |
Total Loan Repayment | - | ₹5,31,780 |
Instead of choosing one, she could do both: break only ₹2 lakh of her FD and take a ₹3 lakh loan. This way, she could keep some of her savings intact while reducing her loan burden and total interest.
In this blog, we’ll break down how you can apply a hybrid approach and manage emergencies.
‘Zaroorat ka naam Mahatma Gandhi!’
Selling your investments might sound liberating till you get instant cash, but have you ever thought about tax deduction? You will also miss out on the benefits of compounding.
On the other hand, borrowing comes with interest and EMI obligations, but it preserves your investments. This way, you keep earning future returns.
For example, Raj, a 45-year-old teacher in Surat, needs ₹2 lakh for his son’s tuition. His mutual fund yields ~12% p.a., while the interest rate on a personal loan is 11%.
Let’s compare both with the help of the table.
Detail | Loan Option | Liquidate MF Option |
Fund Withdrawal Needed | ₹2,00,000 | ₹2,00,000 |
Loan Interest Rate/Expected MF Return |
Has this human race ever agreed on one thing? That is why we have a third and a much better option, the hybrid approach. It gives you the best of both worlds. You can partially liquidate your investments and take a loan for the remaining amount. Your loan costs will be balanced with forgone returns.
Read More - How to Use a Personal Loan for Investment and Maximise Returns in 2025
For example, Anuj needed ₹9 lakh for home upgrades. Instead of redeeming all his investments or taking a full loan, he used a hybrid approach. He redeemed ₹3.5 lakh and took a ₹5.5 lakh loan. His returns on retained SIPs covered most of the loan interest.
Let’s see the overall comparison in the table given below:
Approach | Loan Amount (₹) | Redeemed (₹) | Interest Paid (₹) | LTCG Tax (₹) | Return Lost (₹) | Return Gained (₹) | Net Cost (₹) |
A hybrid plan ensures you keep an emergency fund intact. Instead of breaking the entire ‘gullak’, you are taking out money using a bobby pin. So, your needs are met, your gullak remains intact, and so does the leftover cash in it. Rest, you have arranged with a bank.
For example, Meenal needed ₹1.5 lakh for her father’s surgery but didn’t want to break her full ₹75,000 emergency fund. She used ₹60,000 from it and took a ₹90,000 loan, keeping ₹15,000 intact for future safety and lower EMI stress.
Particulars | Amount (₹) | Notes |
Total Emergency Fund (Liquid MF) | ₹75,000 | Before emergency |
Redeemed from Emergency Fund |
11% p.a.
12% p.a. |
Net Cost of Withdrawal | ₹35,719 (total interest) | ₹20,000 (tax) + ₹40,000 (expected gain over 3 years) |
Full Loan Only
₹9,00,000 |
₹0 |
₹99,000 |
₹0 |
₹0 |
₹0 |
₹99,000 |
Full Redemption Only | ₹0 | ₹9,00,000 | ₹0 | ₹800 | ₹1,08,000 | ₹0 | ₹1,08,800 |
Hybrid (Smartest) | ₹5,50,000 | ₹3,50,000 | ₹57,750 | ₹0 | ₹42,000 | ₹54,000 | ₹45,750 |
*T&C Apply
₹60,000
Used instantly |
Fund Balance After Redemption | ₹15,000 | Still available for future use |
Loan Taken | ₹90,000 | Pre-approved personal loan @11% |
EMI (24 months) | ₹4,173/month | For ₹90K @ 11% interest |
Total Interest Paid | ₹16,692 | Lower than full ₹1.5L loan interest |
Total Outflow Over 2 Years | ₹1,66,692 | ₹60K cash + ₹90K principal + ₹16.7K interest |
Do you know that many Indian equity mutual funds have achieved over 30% CAGR in the last three years? This includes the Motilal Oswal Midcap Fund, with a 35.39% CAGR, and the Bandhan Small Cap Fund, with a 35.18% CAGR, among others.
So, instead of selling appreciating assets, borrow funds at a loan rate and let your investment grow.
For example, Rohit needed ₹2 lakh for studio gear but didn’t want to redeem his ₹4.2 lakh mutual fund. So, he took a ₹1.2 lakh loan and only redeemed ₹80,000. So, the remaining ₹3.4 lakh remained untouched and continued to compound.
Particulars | Amount (₹) | Notes |
Mutual Fund Corpus (Start) | ₹4,20,000 | Growing at 35% CAGR |
Amount Redeemed | ₹80,000 | Used for partial funding |
Fund Remaining | ₹3,40,000 | Left invested |
Value After 2 Years (at 35% CAGR) | ₹6,20,000 | Approx. compound growth |
Loan Taken | ₹1,20,000 | Personal loan @10.5% |
EMI (24 months) | ₹5,829/month | For ₹1.2L @10.5% interest |
Total Interest Paid | ₹19,200 | On ₹1.2L loan |
Investment Gain in 2 Years | ₹2,80,000 | ₹6.2L - ₹3.4L = Net growth |
‘Ek taraf kua, doosri taraf khai!’ If you can neither afford a high-interest loan nor liquidate your growing investment, you can always go for a third option. A hybrid approach lets you meet urgent needs without using your 100% savings or overloading on debt. You save on taxes, returns and interest.
Also Read - What Is Opportunity Cost? Making Smarter Financial Choices
1. Is it better to take out a loan or sell stocks?
If stocks are earning more than the loan interest, take the loan and stay invested.
2. Should I liquidate my investments completely?
Only if it’s a major emergency. Otherwise, take a loan and let investments grow. You can also use both to save on interest as well as returns.
3. Is it wise to take out a loan to invest?
Only when you know that returns will beat the loan cost and the risk is manageable. Generally, this is the wrong practice to follow if you are a beginner.
4. Should I sell my investments to pay off debt?
Sell only if the debt is high-interest and investments aren’t performing well.
