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Building a House with Loans and Monthly Expenses: How Can I Reach My Goal?

Ramalingam

Ramalingam Kalirajan  |7201 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 04, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
JUN Question by JUN on Oct 12, 2024Hindi
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Sir Nameste, Me and my wife from small town working earning 1.13lakh per month, we have 3 loans 1. Icici 10 lakhs @12.39 (2.30 lakhs remaining to closed by september 25) 2. Sbi loan 1.6 lakh just started @ 12.46% 3. LIC loan 2.20 lakh @9% We are government employees both so investment in NPS is aprox 20,000/month We are also investing 19000/month in LIC We had also aquired 2 no. Of land in our locality, (loans are taken for this purpose) Our EMI is aprox 26000/month, and monthly expenses is 53000, we are dipositing all our excess money to our loans so that it all can be closed by 2025 september. Sir what should be my approach to build a house with in next 5 years.

Ans: Assessing Your Current Financial Situation
Your combined monthly income is Rs 1.13 lakh, a solid base for building assets.

You have three active loans with a current EMI of Rs 26,000, which includes loans for land purchase.

Monthly expenses are Rs 53,000, while Rs 19,000 is allocated to LIC premiums, and Rs 20,000 goes to NPS.

You plan to close all loans by September 2025, and currently focus all excess funds towards these debts.

Evaluating Loan Repayment Strategy
Your focus on loan repayment is a wise step. Clearing these high-interest loans will free up monthly cash flow.

Prioritise the SBI loan at 12.46% interest after closing the ICICI loan, as it has a higher rate than the LIC loan.

Once these loans are cleared, your EMI obligation will reduce, allowing you to redirect funds toward home building and investment goals.

Strategic Steps Towards Home Building in 5 Years
Step 1: Plan a Dedicated Savings Fund
Begin a dedicated "Home Building Fund" once the loans are paid off by September 2025. This will give you two years of free cash flow before the home construction goal.

Estimate the cost for building your house. Allocate monthly contributions based on the required budget over 5 years, adjusted for inflation.

A balanced mutual fund or an SIP in a multi-cap fund could be beneficial for growing this fund with moderate risk.

Step 2: Review Existing LIC Policies
Rs 19,000 monthly in LIC may not yield optimal returns. Consider the role of these policies in your overall portfolio.

If these are traditional or endowment policies, they typically offer low returns. Switching to term insurance and investing the rest in mutual funds could enhance your wealth-building potential.

Consult a Certified Financial Planner (CFP) for an analysis of the LIC policies to determine if a shift would benefit your long-term goals.

Step 3: Explore NPS and Additional Investments
NPS is a good retirement tool with Rs 20,000 monthly contribution, but it may not support short-term goals like home building.

Post-loan, consider a diversified mutual fund SIP to grow your funds for the next 5 years, aiming for inflation-adjusted returns.

A combination of large-cap and multi-cap funds offers stability with moderate growth, which is suitable for a 5-year timeline.

Structuring Finances for Future Goals
Step 4: Create an Emergency Fund
As government employees, your jobs are stable, but emergencies can occur. Aim for 3-6 months of expenses saved in a liquid or short-term debt fund.

This fund prevents disruption to your goal-oriented savings if sudden expenses arise.

Step 5: Regular Review and Adjustment
Review your investments annually with a Certified Financial Planner to ensure they align with your timeline and goals.

Assess any rise in construction costs or changes in your financial situation. Regular adjustments ensure you stay on track without compromising other financial priorities.

Finally
Your disciplined approach to clearing loans and managing monthly contributions is commendable. A focused investment strategy after loan repayment will allow you to grow the funds needed to build your house in 5 years. Maintain an emergency fund, optimise insurance, and regularly review your investments to ensure a steady path toward your home-building goal.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
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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Mutual Funds, Financial Planning Expert - Answered on Apr 30, 2024

Asked by Anonymous - Jan 29, 2024Hindi
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I am a female aged 40. My present monthly gross pay is 4.09 lacs. I have a house property which has approx current market value is 1 cr and I have a pending home loan of 25 lacs. I have annual investments of NPS tier1 50k, ppf 1.5 lacs and monthly vpf of 1.25 lacs. My home loan emi is 24.716k. I am married my husband is also well placed and earn little more. We stay in my house and share our expenses equally. My share of expense is within 50k including emi. Both have old arents but they are more or less financially independent. I have an immediate goal to buy a second home at around 2.5 to 3 cr. I have liquid cash of around 50 lacs. I request opinion means to fulfill my goal and also to grow wealth in future
Ans: It sounds like you're in a solid financial position with a clear goal in mind. Given your stable income, existing investments, and liquid cash reserves, you're well-positioned to work towards purchasing a second home.

To fulfill your goal of acquiring a property valued between 2.5 to 3 crores, you may want to consider several strategies:

Continue Building Savings: Maintain your disciplined approach to savings and continue contributing to your investments, such as NPS, PPF, and VPF. This will help grow your wealth over time and provide additional funds for your property purchase.
Review Budget and Expenses: Since you and your husband share expenses equally, ensure that your budget allows for adequate savings towards your property goal. Look for opportunities to optimize expenses and redirect funds towards your savings goal.
Utilize Existing Assets: Your existing house property, with its current market value of 1 crore, can potentially serve as collateral or contribute towards the down payment for your second home. Explore options to leverage this asset effectively.
Investment Diversification: While your current investments are solid, consider diversifying your portfolio to spread risk and potentially enhance returns. Consult with a Certified Financial Planner to explore investment avenues that align with your risk tolerance and long-term objectives.
Mortgage Options: Evaluate different mortgage options available to finance the purchase of your second home. Compare interest rates, loan terms, and eligibility criteria to choose the most suitable option for your financial situation.
Professional Guidance: Given the complexity of your financial situation and the significant investment involved, seek guidance from a financial advisor or planner. They can provide personalized advice and help develop a tailored plan to achieve your property ownership and wealth growth objectives.
By combining prudent financial management with strategic planning, you can navigate towards fulfilling your goal of purchasing a second home while continuing to build wealth for your future.

..Read more

Ramalingam

Ramalingam Kalirajan  |7201 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 24, 2024

Asked by Anonymous - Apr 20, 2024Hindi
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Hello sir, I am 33yr old. I have a salary of 50k/month. I m living in rented house 8k/month. And SIP of 5k/month. Other expenses of 5-8k/month. Please suggest financial planning. And wanted to buy house.
Ans: It's great that you're thinking about financial planning at 33. Let's craft a strategy tailored to your needs and goals.

Emergency Fund:
Goal: Build an emergency fund equal to 6-12 months of living expenses.
Action: Allocate a portion of your savings monthly until you reach this target. Aim to have this fund in a liquid and easily accessible account.
SIPs & Investments:
Current SIP: 5k/month
Action: Consider increasing your SIP amount as your income grows. Diversify investments across equity, debt, and other asset classes to manage risk and achieve growth.
Home Purchase:
Goal: Buy a house.
Action: Start saving for a down payment. Consider your current expenses and see where you can cut back or increase savings. Also, explore home loan options to understand the amount you'd need to borrow and the EMI you'd be comfortable with.
Retirement Planning:
Goal: Secure your retirement.
Action: Start an SIP specifically for retirement. The earlier you start, the better. Consider allocating a portion of your monthly savings to this SIP.
Insurance:
Goal: Protect yourself and your loved ones.
Action: Ensure you have health insurance, life insurance, and if possible, disability insurance. Review and update coverage as your circumstances change.
Additional Income:
Goal: Increase income streams.
Action: Explore opportunities for side hustles, freelancing, or upskilling to boost your income.
Budgeting:
Goal: Manage expenses effectively.
Action: Create a monthly budget to track income and expenses. This will help you identify areas where you can save more.
Remember, financial planning is not a one-time activity. It's an ongoing process that requires regular review and adjustments as your life circumstances change. It's also essential to consult with a Certified Financial Planner to ensure your plan aligns with your goals, risk tolerance, and financial situation.

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Ramalingam Kalirajan  |7201 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 17, 2024

Asked by Anonymous - Jun 19, 2024Hindi
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Hi I'm 31 yo women earning 40k month working in govt sector... I have around 2L saved in bank fd/rd, 5L in stocks and mf, I invest 13.5k pm in mf sip and since I'm covered under nps a monthly contribution of 8.3k monthly goes to my nps account...I would like to buy a house in another 5 years...how should I go about this to achieve my goal assuming the cost of home would be 75 lakhs.
Ans: You're aiming to buy a house worth Rs. 75 lakhs in 5 years. Let's strategize to achieve this goal effectively.

Current Investments Overview
Savings and Investments
You have Rs. 2 lakh in bank FD/RD and Rs. 5 lakh in stocks and mutual funds. You invest Rs. 13.5k monthly in MF SIPs and contribute Rs. 8.3k monthly to NPS.

Investment Strategy for Home Purchase
Increase Savings
Budgeting
Review your expenses and create a budget. Allocate more towards savings for your house. Cut down on non-essential expenses.

Mutual Funds SIP
Diversification
Continue with your MF SIPs. They provide disciplined savings and potential for growth. Consider increasing SIP amount gradually to accumulate more funds.

Actively Managed Funds
Choose actively managed funds for potentially higher returns. These funds are managed by professionals aiming to outperform the market.

NPS Contributions
Retirement Planning
NPS is a good retirement tool. Continue contributions as they also offer tax benefits. Ensure your asset allocation aligns with your risk profile.

Additional Investments
Equity Investments
Consider increasing exposure to stocks and equity mutual funds. They offer higher returns over the long term. Monitor and adjust based on market conditions.

Fixed Income Investments
Allocate a portion to fixed income instruments like FDs or debt mutual funds. They offer stability and are less volatile than equities.

Goal-based Investments
Short-term and Long-term Goals
Allocate funds specifically for your house purchase goal. This helps in tracking progress and ensures funds are available when needed.

Tax Planning
Utilize Tax Benefits
Utilize tax benefits available on investments. MFs, NPS, and FDs offer tax benefits under various sections. Plan investments to optimize tax savings.

Monitoring and Review
Regular Assessment
Review investments periodically. Ensure they are on track to meet your house purchase goal. Adjust investment allocations based on changing circumstances.

Market Conditions
Stay updated with market trends. Monitor economic conditions that impact investments. This helps in making informed decisions.

Final Insights
Achieving your goal of buying a house worth Rs. 75 lakhs in 5 years requires disciplined savings and strategic investments. Continue with MF SIPs, NPS contributions, and diversified investments. Monitor progress regularly and adjust investments as needed. Professional guidance can enhance your strategy.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |7201 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 29, 2024

Asked by Anonymous - Jul 11, 2024Hindi
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Hi I'm 31 yo women earning 40k month working in govt sector... I have around 2L saved in bank fd/rd, 5L in stocks and mf, I invest 13.5k pm in mf sip and since I'm covered under nps a monthly contribution of 8.3k monthly goes to my nps account...I would like to buy a house in another 5 years...how should I go about this to achieve my goal assuming the cost of home would be 75 lakhs.
Ans: Current Financial Snapshot
Age: 31 years
Monthly Salary: Rs 40,000
Savings: Rs 2 lakhs in bank FD/RD
Investments: Rs 5 lakhs in stocks and mutual funds
Monthly SIP Investment: Rs 13,500
NPS Contribution: Rs 8,300 per month
Goal: Buying a House in 5 Years
You aim to purchase a house worth Rs 75 lakhs in 5 years. Here’s how you can plan to achieve this goal.

Building Your Down Payment
Assessing Your Current Contributions
Monthly Savings in SIP: Rs 13,500
Total Monthly Investments: Rs 21,800 (including NPS)
With Rs 2 lakhs in bank savings and Rs 5 lakhs in stocks and mutual funds, you already have Rs 7 lakhs towards your goal.

Increasing SIP Contributions
Consider increasing your SIP contributions by at least Rs 5,000 per month.

This could be achieved through a combination of reducing discretionary expenses and allocating bonuses or increments towards your SIPs.

Liquidating Non-Essential Assets
If any of your stocks are underperforming or not aligned with your long-term goals, consider liquidating them.

This could give you a lump sum to invest in more stable mutual funds.

Optimizing Your Mutual Fund Portfolio
Benefits of Actively Managed Funds
Actively managed funds often outperform index funds in volatile markets.

A Certified Financial Planner (CFP) can help you choose funds that align with your risk profile and goals.

Importance of Regular Funds
Investing through a Mutual Fund Distributor (MFD) with CFP credentials provides professional advice.

This helps in better fund selection and portfolio management, potentially leading to higher returns.

Strategic Use of NPS
Utilizing Partial Withdrawals
The NPS allows partial withdrawals for purchasing a house.

After 3 years of joining, you can withdraw up to 25% of your own contributions.

This can provide a significant amount towards your down payment.

Estimating the Loan Requirement
Down Payment Calculation
Assuming a 20% down payment, you need Rs 15 lakhs upfront.

With Rs 7 lakhs already saved, you need an additional Rs 8 lakhs in 5 years.

Loan Amount
The remaining Rs 60 lakhs can be financed through a home loan.

Given your steady government job, you should be eligible for favorable loan terms.

Building an Emergency Fund
Importance of Liquidity
Ensure you maintain an emergency fund equivalent to 6-12 months of expenses.

This should be kept in liquid funds or a high-interest savings account for easy access.

Reviewing Insurance Needs
Surrendering LIC/ULIP Policies
If you hold any LIC or ULIP policies, consider surrendering them.

Reinvest the proceeds into mutual funds for better returns.

Adequate Health and Life Coverage
Ensure you have sufficient health insurance beyond your employer’s coverage.

A term life insurance plan is also essential to protect your family’s financial future.

Monitoring and Adjusting Your Plan
Regular Reviews
Regularly review your investment portfolio with a Certified Financial Planner.

This ensures your investments remain aligned with your financial goals and market conditions.

Adjusting Contributions
As your income increases, consider increasing your SIP contributions proportionately.

This accelerates your savings and helps you achieve your goal faster.

Final Insights
Achieving your goal of buying a house worth Rs 75 lakhs in 5 years is feasible with disciplined saving and investing.

By optimizing your mutual fund portfolio, utilizing NPS benefits, and maintaining an emergency fund, you can build a substantial down payment.

A home loan can cover the remaining amount, ensuring you secure your dream home within the desired timeframe.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

..Read more

Latest Questions
Milind

Milind Vadjikar  |741 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Dec 03, 2024

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What happens when a Mutual Fund company shuts down / gets sold off?
Ans: Hello;

If a mutual fund company gets sold or fails, the process is prescribed by SEBI:

In case MF company is Sold,
The new fund house may:
1. Continue the scheme with a new name and management.

2. Merge the scheme with similar funds and offer investors the option to exit without any exit load.

In case MF company shuts down,
The fund house will:
1. Pay out investors based on the fund's last recorded Net Asset Value (NAV) and the number of units the investor holds, after deducting expenses.

2. If the company is not in a position to do so then SEBI may liquidate the funds assets and distribute the proceeds to unit holders.

It is also pertinent to note that mutual fund regulation in India is one of the most stringent and hence best, from investor's point of view, globally.

This is not just in theory. We have seen how the Franklin Templeton abrupt closure of debt funds was handled with surgical precision, by SEBI, with no loss to unitholders.


Skin in the game regulation mandates that 20% salary of key mutual fund personnel and fund managers is paid in terms of units of their funds with a 3 year lock-in.

The stocks and bonds purchased by the AMC for the fund are held by a custodian, appointed by the trust that administers the fund.

The trust engages into a investment management agreement with the AMC for managing the fund as per their mandate and within regulatory guidelines.

Registrar and Transfer Agents handle the investor registration,kyc, maintaining records, providing account and tax statements etc.

Happy Investing;
X: @mars_invest

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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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