20 July 2011

Park Money under Flexiloan or Invest in other Asset?

Under flexi-loan scheme, you are able to reduce the principal by parking the extra money under the current account. By doing so, you are able to reduce the loan interest payable as well as the paying period.The question now is that how much is the opportunity cost for parking money under flexiloan or use it to invest in another investment assets.

Let me illustrate one example for you:

If the loan interest is 5% and fixed deposit is 2.0%, I would rather to put the money in the loan account. However, if loan interest is 5% and fixed deposit is 7%, I can choose to park the money under fixed deposit.

In real world, it is not possible that the fixed deposit rate is higher than loan interest. Hence, we should find another alternatives. For example, we can invest in REITs or high yield stock or even fixed income assets.

But please bear in mind that higher return always come with higher risk. However, after we have calculated the risk, then we should be able to figure out the balance of parking money in flexiloan as well as in the higher return asset classes.

Please share with us your opinions above.

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