Where to invest to pay off a car loan early?

Can you suggest any specific funds to plan repayment of a car loan of about Rs 7 lakh before seven years? Is PGIM India Midcap Opportunities Fund a good option by booking profits every three years? - Aditya B

It is good that you are planning to pay off your car loan early.

However, it is discouraged and generally not advised to take a loan for a depreciating asset, like a car, in the first place.

But since you want to pay off your loan in seven years' time (which is considered a short to medium time period), you can look at mutual funds for short to medium tenure. This way, you will be able to protect your capital as well as generate returns (equal to or more than inflation) above it.

So here's what you can do for your car loan repayment:

• Invest in hybrid funds. They are ideal for short to medium time horizons. They give you exposure to both equity and debt. So, you can grow your capital and stay protected from the downsides and volatility in the market.
• Park your monthly surplus in
  Aggressive hybrid funds: To pre-close your loan after three to four years.
  Equity savings funds: To pre-close your loan before three to four years.
  Your surplus amount will decide how soon you can pre-close your loan.

You can also tax efficiently book your profits and park in debt category funds until you make the payment on the loan.

To choose from the funds handpicked by our analysts, check out our Analysts' Choice section.

Please note that PGIM India Midcap Opportunities Fund belongs to the mid-cap category. Mid-cap funds are not recommended for short to medium duration. They are volatile in the short term but are meant for wealth generation in the long run.