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I have over one crore rupees and no loans. Should I invest in another flat, villa, land, FD or MF?

Milind

Milind Vadjikar  |1108 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Oct 02, 2024

Milind Vadjikar is an independent MF distributor registered with Association of Mutual Funds in India (AMFI) and a retirement financial planning advisor registered with Pension Fund Regulatory and Development Authority (PFRDA).
He has a mechanical engineering degree from Government Engineering College, Sambhajinagar, and an MBA in international business from the Symbiosis Institute of Business Management, Pune.
With over 16 years of experience in stock investments, and over six year experience in investment guidance and support, he believes that balanced asset allocation and goal-focused disciplined investing is the key to achieving investor goals.... more
Asked by Anonymous - Oct 02, 2024Hindi
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I already own few flats and a few residential plots in the metro city. I have zero loans, and the flats are generating good rental income. Currently, I have over one crore in hand. Would it be advisable to invest in another flat or an independent villa or land, or should I earn FD interest or even consider other investments like MF ? Please suggest.

Ans: Your entire asset allocation is in favour one asset class real estate. Not to say that it is wrong but it will help if you diversify a bit across different asset classes.

I think you should take exposure to equity through pure equity mutual funds but with long term horizon of minimum 7 years.

Invest it in a staggered manner over period of 10-12 months to get benefit of rupee cost averaging.

Happy Investing!!

You may follow us on X at @mars_invest for updates.

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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I AM THINKING OF TAKING A LOAN OF 5,00,000 AGAINST MY CURRENT MUTUAL FUND MOTILAL OSWAL SMALL CAP FUND AND REINVEST IT IN SAME FUND FOR NEXT 3 YEARS. I DON'T WANT LIQUIDITY FOR NEXT 3-4 YEARS. SEEING THE MARKET IS LOW RIGHT NOW CAN I EXPECT A REURN? SHOULD I CONSIDER THIS OPTION?
Ans: Taking a loan against your mutual funds and reinvesting in the same fund may seem like an opportunity to maximise gains. However, this strategy carries significant risks.

Key Risks to Consider
1. Market Uncertainty
Small-cap funds are highly volatile.
A temporary market correction doesn’t guarantee strong returns in the next 3 years.
If the fund underperforms, you could face both a loan repayment burden and lower returns.
2. Interest Cost vs. Expected Returns
Loan interest rates on mutual fund pledges typically range from 9-12% per annum.
Your small-cap fund must generate higher returns than the loan rate to make this strategy profitable.
If the fund returns below 12% CAGR, your effective gains will be negligible or negative.
3. Forced Liquidation Risk
If the market corrects further, your lender may sell your pledged mutual fund units to recover the loan.
This could happen at a loss, forcing you to exit at a lower NAV.
4. Overexposure to a Single Fund
Investing additional money into the same small-cap fund increases concentration risk.
Instead, diversification across flexi-cap, mid-cap, and small-cap funds is better.
Alternative Approaches
Instead of taking a loan, consider:

SIP Investment Strategy

Continue SIPs in a staggered manner rather than a lump-sum reinvestment.
This reduces the risk of investing at an unfavourable price.
Diversified Portfolio Allocation

If markets recover, large-caps and flexi-caps may rebound earlier than small-caps.
Diversifying into these categories will balance returns and risk.
Rebalancing Your Current Portfolio

If you have underperforming funds, consider shifting money to stronger funds.
This avoids borrowing costs and interest rate risks.
Final Insights
Taking a loan against your mutual fund for reinvestment is not advisable due to the high risk of market downturns, interest costs, and forced liquidation. Instead, a disciplined SIP approach in diversified funds will offer better risk-adjusted returns.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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