Hello, I am 38 years old and wife is 36, we have two kids 9 years and 3 years old. Our monthly salaried income is 2.6L and below is our wealth accumulation. Mutual Funds (Direct growth) : 24Lakhs Equity current valuation: 70L FD - 6L PF/PPF/NPS/SSY: 46Lakhs House: 1 house (60L) - no Home loan Car loan - 5L pending Insurance etc - 10K PA Savings - 40L Our monthly expenditure as below Expenses - Around 30K SIP - 56K Additional NPS/PPF/SSY - 30K Car Loan EMI (7%)- 20K And also expecting around 5-7 Cr for retirement (after 15-16 years) We are looking for to invest in another (bigger) home (for self occupancy) and its of around 1.75 crores. Thinking of 35L as down payment (1.4Cr as loan amount). And we do not wise to use any invested amount in this home as the same fund can be used in retirement. Please advise it wise to invest in home (as we need 1) and will it impact financial targets for the retirement?

Ans: You have done a commendable job in building your financial portfolio. Your diversified investments in mutual funds, equities, fixed deposits, and provident funds show a balanced approach towards wealth accumulation. Your desire to buy a bigger home for self-occupancy is understandable. However, it's essential to evaluate how this decision will impact your financial goals, especially your retirement plans.

Current Financial Overview

Your monthly salaried income is Rs 2.6 lakhs, and you have significant savings and investments:

Mutual Funds (Direct Growth): Rs 24 lakhs

Equity (Current Valuation): Rs 70 lakhs

Fixed Deposits: Rs 6 lakhs

Provident Fund/Public Provident Fund/National Pension System/Sukanya Samriddhi Yojana: Rs 46 lakhs

House (Valuation): Rs 60 lakhs (no home loan)

Savings: Rs 40 lakhs

Insurance Premiums: Rs 10,000 per annum

Car Loan: Rs 5 lakhs pending

Your monthly expenses are well-managed with Rs 30,000 for household expenses, Rs 56,000 for SIPs, Rs 30,000 for additional investments in NPS, PPF, SSY, and Rs 20,000 for car loan EMI.

Retirement Goal Analysis

You aim to accumulate Rs 5-7 crores for retirement in 15-16 years. Your current investments and savings are substantial, but it's crucial to ensure these continue to grow without interruption. Let's break down the impact of buying a new home on your financial goals.

Home Purchase Decision

Buying a bigger home for Rs 1.75 crores with a Rs 1.4 crore loan and Rs 35 lakhs down payment is a significant decision. Here are some considerations:

Down Payment Impact

The Rs 35 lakhs down payment can come from your savings of Rs 40 lakhs. This will reduce your liquid savings but won't affect your other investments directly. Ensure that you keep an emergency fund even after making this down payment.

Loan EMI Impact

A Rs 1.4 crore loan will result in a significant EMI burden. At a 7% interest rate, the EMI could be around Rs 1 lakh per month. This will considerably increase your monthly financial outgoings. Your current car loan EMI of Rs 20,000 will end in a few years, but this new home loan EMI will last much longer.

Monthly Budget Adjustments

You need to assess your monthly budget to accommodate the new home loan EMI:

Current Expenses: Rs 30,000

Current SIPs: Rs 56,000

Current Additional NPS/PPF/SSY: Rs 30,000

Current Car Loan EMI: Rs 20,000

Post car loan repayment, you still need to manage an additional Rs 80,000 for the home loan EMI. This will require adjustments in your savings or lifestyle.

Investment Strategy Adjustment

Consider reviewing your SIPs and other investments. While mutual funds (direct growth) are good, you might want to switch to regular funds through a certified financial planner (CFP). A CFP can offer professional advice and help you choose better-performing funds. Regular funds often come with expert management that can outperform direct funds in the long run.

Provident Fund Contributions

Your contributions to PF, PPF, NPS, and SSY are wise decisions. These instruments provide a safety net for your retirement. Ensure that your contributions continue even after adjusting for the new home loan EMI. This may require a strategic reallocation of your monthly investments.

Evaluating Investment Options

Actively managed mutual funds can offer better returns compared to index funds. Index funds, while low-cost, simply mirror the market and might not beat inflation significantly. Actively managed funds, though costlier, have the potential for higher returns due to professional management.

Equity Investments

Your equity investments of Rs 70 lakhs are a strong component of your portfolio. Equities tend to offer high returns over the long term but come with volatility. Consider diversifying within equities by sector and company size. Regular review and rebalancing of your equity portfolio are essential.

Insurance

You have insurance coverage of Rs 10,000 per annum, which seems to be a nominal amount. Ensure you have adequate life and health insurance coverage to protect your family's financial future. Adequate insurance can prevent financial disruptions in case of unforeseen events.

Emergency Fund

After the down payment for the new home, ensure you maintain an emergency fund equivalent to at least 6-12 months of expenses. This fund is crucial for financial stability and should be kept in a liquid form.

Assessing Future Financial Goals

Your children's education and other future goals should also be factored into your financial planning. Higher education costs are rising, and it's wise to start dedicated savings or investments for these goals. Education plans, child-specific mutual funds, or a dedicated savings account can be considered.

Professional Guidance

Consulting a CFP can provide a comprehensive view of your financial health. A CFP can offer tailored advice, ensuring that your retirement goals remain intact while accommodating your new home purchase. Regular financial reviews with a CFP can help adjust your strategies as your financial situation evolves.

Final Insights

Buying a new home is a major financial decision. It's important to balance this with your long-term financial goals. Your current financial health is strong, but the new home loan EMI will require significant adjustments.

Consider the following steps:

Maintain Emergency Fund: Keep an emergency fund even after the down payment.

Adjust Monthly Budget: Ensure your monthly budget accommodates the new EMI without compromising essential investments.

Seek Professional Advice: A CFP can help optimize your investments and ensure your retirement goals are not compromised.

Review Insurance: Ensure you have adequate insurance coverage.

Plan for Future Goals: Start planning for your children's education and other long-term goals.

Your dedication to financial planning is commendable. With careful adjustments and professional guidance, you can achieve your goal of a new home while staying on track for a secure retirement.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in