Mudassar, With 3 Kids and House Loan, Asks: Should I Sell My House for Investment?

Ans: I'm sorry to hear about your job loss, but it's commendable that you're taking proactive steps to manage your finances during this challenging time. Let's create a plan to address your immediate needs and long-term goals:

• Home Loan Repayment: Selling your other two flats to repay the home loan is a prudent decision, as it will relieve you of the burden of the EMI and reduce financial stress.

• Emergency Fund: It's essential to maintain an emergency fund to cover unexpected expenses and loss of income. Since you'll have 70 lakhs from the sale of your flats, consider keeping a portion of this amount aside as your emergency fund, ideally in a liquid and accessible form like a savings account or short-term FD.

• Children's Education: With 60 lakhs earmarked for your children's education, you can explore investment options that offer growth potential over the medium to long term. Consider a combination of equity mutual funds, balanced funds, and fixed-income instruments to achieve your education goals. Since your daughter is in 12th grade, you may need to prioritize her education expenses in the near term.

• Retirement Planning: Your goal of having 1 lakh per month from next month onwards for retirement can be achieved by structuring your existing investments wisely. With 70 lakhs in EPF, 30 lakhs in PPF (maturing in 2026), and other fixed deposits and mutual funds, you have a solid foundation. You can explore options like Senior Citizen Savings Scheme (SCSS), Post Office Monthly Income Scheme (POMIS), and systematic withdrawal plans (SWPs) from mutual funds to generate a regular income stream in retirement.

• Income Replacement: Since you'll no longer have a regular income from employment, it's crucial to plan for income replacement. Your wife's income of 50,000 per month will provide some support, but you may need to supplement it with income generated from your investments.

• Expense Management: Given your monthly expenses of 75,000, it's essential to budget carefully and prioritize your spending. Look for areas where you can cut costs without compromising on essentials.

• Professional Advice: Consider consulting with a Certified Financial Planner who can help you develop a comprehensive financial plan tailored to your specific circumstances and goals. They can provide valuable guidance on investment strategies, tax planning, and retirement planning.

In conclusion, while losing your job is undoubtedly challenging, with careful planning and prudent financial management, you can navigate this period of transition successfully. By leveraging your existing assets and making strategic investment decisions, you can work towards achieving your children's education goals and securing a comfortable retirement for yourself. Stay focused, stay positive, and remember that you're not alone in this journey.

Ans: Current Financial Situation
Assets
Stocks: Rs 1.40 crores
PPF: Rs 20 lakhs
EPF: Rs 25 lakhs
SGBs: Rs 20 lakhs
Mutual Funds: Rs 20 lakhs
Real Estate: Rs 55 lakhs (purchase value) with an outstanding loan of Rs 24 lakhs
Income and Investment Capacity
Monthly Available for Investment: Rs 1.5 lakhs
Job Security: At risk, with potential job loss in 8 months
Goals and Questions
Purchasing a House for Rs 1.60 Crores
You plan to buy a second house for Rs 1.60 crores. You are considering selling your current house and using the proceeds, along with your investments, to fund the purchase.

Key Questions
Should I purchase the house for staying at 58 years if job is not secure?
Should I sell the first house and use the proceeds for the second house, or invest in mutual funds and withdraw from the corpus?
Should I sell part of my stocks to pay for the second house, or keep the proceeds in mutual funds and use SWP?
Should I move some stock investments to mid-cap and small-cap mutual funds?
Is it better to invest Rs 50 lakhs in small and mid-cap funds across 2 or 4 funds?
Detailed Analysis
Purchasing the House
Job Security and Financial Stability
Given the potential job loss, ensure financial stability first. Buying a house worth Rs 1.60 crores may strain your finances if your job is at risk.

Using Proceeds from the First House
Selling the First House
Proceeds: Selling the first house can get you Rs 35-40 lakhs after paying off the loan. This can be used towards the purchase of the second house.
Investing in Mutual Funds
Investing Proceeds: If you invest the proceeds in mutual funds, you can withdraw through a Systematic Withdrawal Plan (SWP) to fund the second house. This approach can offer better returns compared to keeping the funds idle.
Selling Stocks for the Second House
Selling Stocks
Partial Sale: Consider selling part of your stock portfolio. This can provide liquidity for the house purchase. However, do not liquidate all stocks, as they offer growth potential.
Investing in Mutual Funds
SWP Strategy: Transfer the sale proceeds to mutual funds and use an SWP for steady payments towards the house. This offers tax efficiency and better returns.
Stock Portfolio Adjustment
Current Returns
Returns: Your stocks have given 10-15% returns over the last two years. This is a decent performance.
Diversifying to Mutual Funds
Reallocation: Moving 40-50% of your stock investments to mid-cap and small-cap mutual funds can diversify your risk and offer higher growth potential.
Investment in Mid-Cap and Small-Cap Funds
Number of Funds
4 Funds Approach: Invest Rs 50 lakhs across 4 funds (2 in mid-cap and 2 in small-cap). This diversifies your risk and provides exposure to different fund management styles.
Recommendations
Prioritise Financial Stability
Ensure you have enough liquidity and emergency funds, given your job risk.
Avoid making large financial commitments like purchasing a new house if job security is uncertain.
Using First House Proceeds
Sell your first house and use the proceeds towards the second house.
If not buying immediately, invest the proceeds in mutual funds and use SWP for payments.
Managing Stock Investments
Sell a portion of your stocks to generate liquidity.
Reinvest in mutual funds, especially mid-cap and small-cap, for better diversification and potential returns.
Mutual Fund Strategy
Invest Rs 50 lakhs in 4 funds (2 mid-cap, 2 small-cap) for balanced diversification.
Ensure the funds are actively managed for better performance.
Final Insights
Maintain financial stability given your job situation. Diversify your investments to reduce risk. Prioritise liquidity and ensure you have enough funds to cover potential job loss. Consider professional advice for a tailored strategy.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

Ans: You are in a good place financially. With a monthly salary of Rs 70,000, you have been steadily building your wealth since you began working in 2020. The fact that you started investing in mutual funds from November 2020 is a positive step towards securing your financial future. Your decision to increase the SIP amount by 10% each year reflects a disciplined and forward-thinking approach to wealth accumulation.

The Rs 7.5 lakhs you’ve accumulated in the bluechip fund shows the power of consistency and long-term investing. Additionally, your Rs 1.7 lakhs in a Fixed Deposit for emergencies is a sensible move, ensuring you have a safety net. Your Rs 1 crore term insurance policy is also a wise decision, offering financial security to your family in case of unforeseen events.

Your recent investment of Rs 10,000 per month in an ELSS fund is a strategic choice, combining tax savings with equity growth potential. This is an intelligent move considering the tax benefits under Section 80C, along with the long-term growth prospects of equity investments.

However, your dream of owning a home and the associated plans to take a home loan of Rs 50-60 lakhs requires careful consideration, especially in the context of your current and future financial goals.

Home Loan and Its Impact
Owning a home is a significant milestone. However, taking a home loan for Rs 50-60 lakhs is a substantial financial commitment. A loan of this size could lead to an EMI of around Rs 40,000 to Rs 50,000 per month, depending on the interest rate and tenure. This will significantly impact your cash flow.

Things to Consider Before Taking the Home Loan:

EMI Burden: The EMI will consume a significant portion of your monthly income. This could limit your ability to invest in other areas. With your current salary, this EMI might take up over half of your monthly income, potentially straining your budget.

Interest Cost: Over the tenure of the loan, the interest component could be considerable. Even though the real estate appreciates, the interest you pay over time might outweigh the gains unless the property’s value appreciates substantially.

Opportunity Cost: The funds directed towards home loan EMIs could otherwise be invested in high-growth avenues, potentially offering higher returns over the long term.

Adjusting Your Investment Strategy
Given your current situation and future plans, a few adjustments in your investment strategy might help balance your dream of owning a home with your long-term financial goals.

Increasing SIPs Gradually:

Continue with your existing SIPs in mutual funds, including the ELSS fund for tax saving. Given the power of compounding, even small, regular investments can grow significantly over time. Since you have already implemented a strategy of increasing your SIP by 10% each year, ensure you continue this practice. This will help counter the effect of inflation on your investments and ensure your wealth grows in real terms.
Diversification of Investment Portfolio:

While bluechip funds are a good choice for stability and growth, consider adding mid-cap and small-cap funds to your portfolio. These funds carry higher risk but offer the potential for higher returns. A diversified portfolio can help you achieve a balance between risk and return, thereby optimizing your overall portfolio performance.
Avoid Overreliance on FD for Emergency Fund:

Your Rs 1.7 lakh FD serves as an emergency fund, which is essential. However, Fixed Deposits may not be the best option in terms of returns. Consider moving a portion of this fund to a liquid fund or a short-term debt fund. These funds offer better returns than FDs and are equally liquid, ensuring you can access the money when needed without sacrificing returns.
Reassessing the Home Loan Plan
Given the potential financial strain of a large home loan, it might be worth reconsidering the size of the loan or even the timing of your home purchase. Here are a few strategies to help you align your dream of homeownership with your financial security:

Delay the Purchase:

Consider delaying the home purchase by a few years, allowing your investments to grow further. This could reduce the loan amount you need to take, thereby reducing the EMI burden. A delay of even 3-5 years could make a significant difference in your financial comfort.
Save for a Larger Down Payment:

Increase your savings to make a larger down payment on the house. This will reduce the loan amount, subsequently lowering the EMIs and interest paid over time. Given your disciplined approach to SIPs, you could allocate some of your savings towards this goal.
Consider a Shorter Loan Tenure:

If you are set on buying the home now, consider opting for a shorter loan tenure. Though this would mean higher EMIs, you will pay significantly less interest over the loan’s life. It will also help you become debt-free sooner, allowing you to focus on other financial goals.
Maintain a Healthy Debt-to-Income Ratio:

Aim to keep your debt-to-income ratio below 40%. This means your total EMI payments (including the home loan) should not exceed 40% of your monthly income. This will ensure you have enough left over to invest in other areas and meet your living expenses comfortably.
Ensuring Long-Term Financial Security
Owning a home is a part of your financial journey, but ensuring long-term security requires a broader approach. Here’s how you can align your home purchase with other financial goals:

Retirement Planning:

Continue building your retirement corpus alongside your home loan repayments. With the power of compounding, the earlier you start, the more significant your retirement fund will be. Even a small monthly SIP dedicated to your retirement can grow substantially over time.
Review Your Insurance Needs:

Your Rs 1 crore term insurance is a good start, but with a home loan, your liabilities increase. Consider reviewing your insurance coverage to ensure it adequately covers your outstanding loan amount along with other potential financial responsibilities.
Education Fund for Future Children:

If you plan to have children in the future, consider starting an education fund early. SIPs in equity mutual funds or child-specific investment plans can help you accumulate a substantial corpus by the time your child needs it.
Tax Planning Strategies
Given that you are already investing in an ELSS fund for tax saving, continue doing so. However, with the addition of a home loan, you will have more tax-saving avenues available:

Section 80C Deductions:

The principal repayment of the home loan qualifies for a deduction under Section 80C, along with your ELSS contributions. This could help you maximize your Section 80C deductions up to the limit of Rs 1.5 lakhs.
Section 24(b) Interest Deductions:

Under Section 24(b), the interest paid on your home loan is deductible up to Rs 2 lakhs per annum. This deduction will significantly reduce your taxable income, thereby lowering your tax liability.
Maximizing HRA and Home Loan Benefits:

If you continue living in a rented house even after purchasing the new home, you can claim both HRA (House Rent Allowance) and home loan deductions, depending on the location and circumstances.
Final Insights
Your financial journey is off to a great start, and your disciplined approach to saving and investing will serve you well in the long run. However, balancing your dream of owning a home with other financial goals requires careful planning and consideration.

While taking a home loan is a viable option, ensure it does not strain your finances to the point where it compromises other aspects of your financial well-being. By gradually increasing your SIPs, diversifying your investments, and possibly delaying your home purchase or saving for a larger down payment, you can achieve your dream without compromising your financial security.

Remember, your financial plan should be flexible, allowing you to adjust as circumstances change. Regularly reviewing and adjusting your strategy with the help of a Certified Financial Planner will ensure you stay on track to achieve all your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in