Hi sir my question is building independent house (second house ) for renting out is a good invetment or investing in mutual funds is a good investment. For building house 50 lakh is required which i will raise thru second home loan. or for same EMI (paying to home loan )can i invest in mutual funds in SIP mode.If so what is the minimum return per annum is expected in MF and which is better one Kindly guide me. manju

Ans: Below are few funds that can be considered for monthly investment:

1. UTI Flexi Cap Fund -- Growth
2. Parag Parikh Flexi Cap Fund -- Growth
3. Axis ESG Equity Fund -- Growth
4. Motilal Oswal Focused 25 Fund -- Growth

Ans: Hi Murgendra, thank you for writing in.

I notice you are currently investing around 70% of your funds in index funds, HDFC Nifty 50 & HDFC Nifty Next 50. With this, your portfolio returns will mostly mirror index returns.

You can consider investing Rs.10,000 in HDFC Nifty 50 Index Fund and Rs.10,000 in HDFC Nifty Next 50 Index Fund & invest the balance Rs.10,000 as follows:
1-SBI Magnum Midcap Fund-Growth Rs.5,000
2-Franklin India Smaller Companies Fund- Growth Rs.5,000

This will give you more midcap and smallcap exposure that have the potential to outperform the index and help you generate higher returns.

To create a corpus of Rs.50 Lakh in 5 years, you will need to invest around Rs.60,500 per month, that is increase your SIP’s by Rs.17,500. You need not invest in any new schemes, but simply increase the SIP amounts in the same proportion.

Annual step ups of around 10% will help you achieve your goals faster.

Ans: Thank you for reaching out. Your goal of buying a house and investing in mutual funds is commendable. Let’s break down your questions and provide a structured plan.

Saving for a House Purchase
Understanding Down Payment and Loan Amount
When buying a house, financial discipline is crucial. Typically, banks require a down payment of 20% of the property value. For a flat costing Rs. 1 crore, you need to save Rs. 20 lakhs as a down payment.

Planning Your Down Payment
Assess Your Savings: Calculate your current savings and how much you need to accumulate.

Monthly Savings Goal: Determine how much you need to save monthly to reach Rs. 20 lakhs. This will depend on your timeframe.

Automate Savings: Set up an automatic transfer to a high-interest savings account or a liquid mutual fund. This ensures disciplined saving.

Managing Your Loan
Loan Amount: After the down payment, you will need a loan of Rs. 80 lakhs.

Loan EMI Calculation: Ensure your EMI does not exceed 40% of your monthly income to maintain financial stability.

Investment Strategy for High Returns
Realistic Expectations
Achieving a 25-30% annual return consistently is unrealistic and risky. The Indian equity market averages around 12-15% annually over the long term. High returns come with high risk, and such expectations can lead to significant losses.

Recommended Mutual Funds
While aiming for high returns, consider a balanced approach with diversified equity funds and some exposure to mid and small caps. Here are some fund types to consider:

Flexi Cap Funds: These funds invest across market capitalizations and adapt to market conditions.

Mid Cap Funds: Focus on mid-sized companies with growth potential but higher risk than large caps.

Small Cap Funds: Invest in smaller companies with high growth potential and high risk.

Sectoral/Thematic Funds: Target specific sectors which may offer high returns but are also very risky.

Suggested Mutual Funds Allocation
Flexi Cap Fund: 40%

Mid Cap Fund: 30%

Small Cap Fund: 20%

Sectoral/Thematic Fund: 10%

Your Current Financial Commitments
Existing Car Loan
Your car loan EMI is Rs. 13,000 per month. Ensure this does not strain your finances when combined with other obligations.

Investing Rs. 10,000 in SIPs
Given your goal of high returns, here’s how you can allocate your Rs. 10,000 monthly SIP:

Flexi Cap Fund: Rs. 4,000

Mid Cap Fund: Rs. 3,000

Small Cap Fund: Rs. 2,000

Sectoral/Thematic Fund: Rs. 1,000

Risk Management and Diversification
Diversification
Diversification reduces risk. Spread your investments across different asset classes and sectors to mitigate potential losses.

Regular Review and Rebalancing
Review your portfolio every 6-12 months. Rebalance to align with your financial goals and market conditions.

Professional Guidance
Certified Financial Planner
Consult a Certified Financial Planner (CFP) for personalized advice. A CFP can help tailor your investment strategy, manage risks, and achieve your financial goals.

Conclusion
Your financial discipline and clear goals are commendable. By saving diligently for your down payment and investing wisely, you can achieve your dream of buying a house and building substantial wealth. Remember, while high returns are desirable, maintaining a balanced and diversified portfolio is key to long-term success.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: At 48, your focus on securing your financial future is commendable. You currently have Rs 30 lakhs and are considering two options: investing in SIPs or building another house. Both options have their advantages, but it’s essential to evaluate them based on your long-term financial goals and risks.

SIPs vs. Building Another House
Before making a decision, it’s essential to weigh the pros and cons of both options—investing in SIPs versus building another house. Both have different risk factors, returns, and levels of liquidity.

Investing in SIPs
Investing in Systematic Investment Plans (SIPs) can provide the following benefits:

Diversified Growth: SIPs spread your investment across various assets. This reduces risk and maximizes returns.

Regular Compounding: SIPs benefit from compounding over time. The longer you stay invested, the higher your potential returns.

Liquidity: Unlike real estate, mutual funds through SIPs offer high liquidity. You can withdraw money whenever you need, giving you more flexibility.

Tax Efficiency: While SIPs in equity mutual funds attract long-term capital gains tax, they can still be more tax-efficient than rental income from real estate.

Inflation Beating Returns: Over time, equity mutual funds tend to outperform inflation. This is crucial to ensure your wealth grows.

Building Another House
Building a second house has the following features:

Stable Rental Income: Owning a rental property can provide a steady monthly income. This can supplement your retirement income.

Low Liquidity: Real estate is not a liquid asset. If you need funds urgently, selling the property could take time.

High Maintenance Costs: Property comes with regular maintenance, taxes, and possible vacancies, which can reduce your rental returns.

Market Volatility: Real estate markets fluctuate. Depending on the location and demand, property prices may not appreciate as expected.

Concentration of Wealth: Investing heavily in real estate ties up a large portion of your wealth in one asset. This reduces diversification and increases risk.

Analytical Comparison
SIPs:
Risk-Adjusted Growth: SIPs provide steady, inflation-beating returns if invested in a well-diversified portfolio.

Flexibility: You can easily adjust your monthly SIP contributions based on your financial situation.

Compounding Effect: Over time, SIPs allow for the compounding of returns. This can significantly increase your corpus by retirement.

Building a House:
Illiquidity: A house is not easily liquidated. If you need cash for emergencies or other needs, selling the house may take time.

Rental Income Uncertainty: Rental income is not guaranteed and can fluctuate based on market conditions.

High Costs: There are ongoing costs for maintenance, property taxes, and possible vacancies.

Which Option is Best?
Now, let’s evaluate your situation:

You already own one house, which provides security. Building another house would concentrate a significant portion of your wealth in real estate. This increases your financial risk due to potential market fluctuations and vacancies.

SIPs offer a more diversified and flexible approach. Over the next 10-15 years, if you invest regularly, your wealth can grow significantly. This will provide you with a more flexible income stream in the future.

Since you are 48 years old, planning for retirement is crucial. SIPs can give you consistent growth and liquidity for your retirement needs.

Final Insights
Given your age and current financial situation, investing in SIPs seems to be a better option. It offers flexibility, growth, and diversification, which are essential for long-term financial security. While building a house for rental income may sound appealing, the risks involved—such as market volatility, low liquidity, and maintenance costs—make it a less attractive option compared to the potential returns from SIPs.

Opting for SIPs can give you better control over your money and provide more stable growth in the long run. You can always adjust your SIP contributions based on your financial situation, ensuring that your wealth grows at a steady pace.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment