Hi sir , My salary is around 10lakhs per annum. My family consists of my mother, wife and a new born kid. I don’t have a house yet and been trying to buy one in Hyderabad from a long time but since the costs are very high I have to buy later. Now since my family is growing I am planning to buy a car which is of worth 8 lakhs .. I am now in a dilemma whether to buy a car first or the house. I already have savings in FD for 16lakhs and 1.5 lakhs in mutual funds and stocks .. Please advice . Car or house ???

Ans: Given your financial situation, it's important to prioritize debt management, savings, and investment planning to achieve your long-term financial goals. Here are some tailored suggestions:

Debt Management:
Continue prioritizing the repayment of your housing loans. Focus on clearing high-interest debt first, such as the outstanding loan on Property 1.
Explore options to accelerate debt repayment, such as allocating any surplus income towards loan prepayments.
Review the terms of your car loan and consider refinancing if possible to reduce the monthly EMI burden.

Emergency Fund:
Establish an emergency fund equivalent to at least 6-12 months of your household expenses. This fund will provide a financial buffer in case of unexpected events like job loss or medical emergencies.
Set aside a portion of your monthly income towards building this fund gradually, even while repaying loans.

Savings and Investments:
Once you have built an emergency fund, allocate a portion of your income towards systematic savings and investments.
Consider investing in tax-efficient instruments like Equity Linked Savings Schemes (ELSS) to optimize tax benefits while generating potential long-term returns.

Diversify your investment portfolio across asset classes such as equity, debt, and gold to mitigate risk and enhance overall returns.

Insurance Coverage:
Review your existing insurance coverage, including life, health, and property insurance, to ensure adequate protection for your family and assets.
Consider purchasing term insurance policies to provide financial security to your dependents in the event of any unforeseen circumstances.

Financial Planning:
Engage the services of a Certified Financial Planner (CFP) to develop a comprehensive financial plan tailored to your specific goals, risk tolerance, and time horizon.
Work with your financial planner to set clear objectives, such as retirement planning, children's education, and wealth accumulation, and devise a strategy to achieve them systematically.

Budgeting and Expense Management:
Track your monthly expenses diligently to identify areas where you can optimize spending and redirect savings towards debt repayment and investments.
Create a realistic budget that accounts for all essential expenses, loan repayments, savings, and discretionary spending.

Future Financial Goals:
Define your long-term financial goals, such as retirement planning, children's education, and wealth creation, and allocate resources accordingly.
Regularly review your financial plan with your spouse and adjust strategies as needed based on changing circumstances and priorities.

By adopting a disciplined approach to debt management, savings, and investment planning, you can gradually improve your financial health and work towards achieving your long-term financial objectives. Consulting with a qualified financial advisor or planner can provide valuable guidance and support in navigating complex financial decisions and optimizing your overall financial well-being.

Ans: Assessing Your Current Financial Situation
Income and Savings
Your combined monthly take-home income is Rs. 2 lakhs. Your current savings include:

Mutual Funds: Rs. 85 lakhs
Public Provident Fund (PPF): Rs. 18 lakhs
Employees’ Provident Fund (EPF): Rs. 32 lakhs
Other Investments (FD, Savings, Shares): Rs. 25 lakhs
Your monthly savings distribution is as follows:

SIP in Mutual Funds: Rs. 75,000
PPF: Rs. 18,000
EPF: Rs. 25,000
You live in a rented house with a rent of Rs. 14,000 per month.

Evaluating the Decision to Buy a New Flat
Current Housing Situation
Living in a rented house at Rs. 14,000 per month is relatively affordable, especially given your high monthly income. Renting provides flexibility and lower maintenance costs compared to owning.

Financial Impact of Buying a New Flat
Purchasing a new flat would involve a significant financial commitment, including a home loan, maintenance costs, property taxes, and other associated expenses. This would reduce your investable surplus and potentially impact your ability to meet your financial goals.

Comparative Analysis: Rent vs. Buy
Renting: Offers flexibility, lower upfront costs, and avoids long-term debt.
Buying: Provides stability and potential appreciation in property value but requires a large financial commitment and ongoing expenses.
Long-term Financial Goals
Target: Rs. 15 Crores by Age 60
To achieve your target of Rs. 15 crores by age 60, you need to focus on maximizing your investments' growth while maintaining a balanced risk profile.

Current Investments and Growth Potential
Mutual Funds: Your Rs. 85 lakhs in mutual funds can grow substantially with continued SIPs and market performance.
PPF and EPF: These provide stable, long-term growth with tax benefits, contributing to your retirement corpus.
Other Investments: FDs, savings, and shares add diversification but should be reviewed for optimal growth potential.
Investment Strategy
Enhancing SIP Contributions
Continuing and potentially increasing your SIP contributions will leverage the power of compounding. Focus on a mix of equity and debt funds to balance growth and risk.

Recommendation: Consider increasing your SIP by a percentage each year to keep pace with inflation and maximize returns.
Diversification and Rebalancing
Ensure your portfolio is diversified across various asset classes to minimize risk and optimize returns. Periodically review and rebalance your portfolio to stay aligned with your financial goals.

Recommendation: Include large-cap, mid-cap, and multi-cap funds for equity exposure. Balance with debt funds for stability.
Utilising Tax-efficient Investments
Maximize your contributions to tax-efficient instruments like PPF and EPF. These not only provide stable returns but also offer significant tax benefits.

Recommendation: Continue maximizing your PPF contributions and ensure your EPF contributions are optimized.
Emergency Fund Management
Maintaining a robust emergency fund is crucial. Your current Rs. 25 lakhs in FD and savings can be used to cover unexpected expenses.

Recommendation: Keep at least 6-12 months of living expenses in easily accessible liquid assets.
Estate Planning and Insurance
Life and Health Insurance
Ensure adequate life and health insurance coverage for your family, especially considering your elder son's needs. This will protect your family's financial stability in case of unforeseen events.

Recommendation: Opt for a comprehensive health insurance plan and term insurance for sufficient coverage.
Estate Planning
Create a comprehensive estate plan, including a will, to ensure your assets are distributed according to your wishes and your family is taken care of.

Recommendation: Consult a legal expert to draft a will and set up any necessary trusts.
Education and Future Planning for Children
Special Needs Planning
Given your elder son's Down syndrome, consider creating a financial plan that ensures his long-term care and support.

Recommendation: Look into setting up a special needs trust and explore government schemes and benefits available for children with disabilities.
Education Fund for Younger Son
Start a dedicated investment plan for your younger son's education. This can include child-specific mutual funds or education-focused investment plans.

Recommendation: Allocate a portion of your monthly savings towards an education fund.
Final Insights
Given your strong financial position and disciplined saving habits, you are well on your way to achieving your long-term goals. However, buying a new flat at this stage might not be the best financial decision if it significantly impacts your investment capacity.

Focusing on growing your investment portfolio and maintaining a balanced, diversified approach will help you accumulate the desired Rs. 15 crores by age 60. Ensuring adequate insurance coverage and planning for your elder son's special needs will further secure your family's future.

Stay disciplined with your investments, periodically review your portfolio, and make adjustments as needed to stay on track. Consulting with a Certified Financial Planner can provide personalized advice and help optimize your financial strategy.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Considering that you are already employee of a bank and can get better interest rates I recommend you go ahead and invest in the property.

Both of you are earning which is positive because even if major part of your income goes towards loan repayment you have back up for regular expenses and PPF/NPS/SSY investments.

Retain that 7 Lac as your emergency fund. Add to it so as to cover 8-10 months of expense coverage.

Surely you have group health cover but consider having a separate personal family floater cover which comes in handy during job switch and any unexpected medical need arises.

I am sure you both have adequate term life cover.

All the best!!

Ans: Let’s first look at the assets and liabilities you currently have:

Provident Fund (PF): Rs 45 lakhs
Fixed Deposits: Rs 50 lakhs
Mutual Funds: Rs 10 lakhs
National Pension Scheme (NPS): Rs 6 lakhs
SBI Elite Scheme: Rs 10 lakhs
Axis policy: Rs 5 lakhs (paying Rs 1 lakh per year for 10 years)
SBI Mutual SIP/Insurance: Rs 6 lakhs
Plot of Land: Rs 50 lakhs
Home Loan: Rs 9 lakhs (EMI of Rs 25,000 per month)
You also mentioned that you have an additional Rs 10 lakhs which you are considering for a down payment on a new car worth Rs 27 lakhs.

This is a very good base of financial assets. Let’s assess whether buying a car right now is a wise decision based on your current financial standing and future needs.

Evaluating the Car Purchase

Buying a car is often an emotional decision, but it’s also a big financial commitment. You’re considering a down payment of Rs 10 lakhs for a car worth Rs 27 lakhs. Let’s break down the key factors:

Liquidity Impact:
You plan to use Rs 10 lakhs from your available funds for the car down payment. This amount is a significant chunk of your liquidity. Reducing your liquid cash could make it harder to cover any unexpected expenses.

EMI Commitment:
If you finance the remaining Rs 17 lakhs, your EMI could be between Rs 35,000 to Rs 40,000 per month (assuming a typical car loan tenure and interest rate). This would add to your current EMI of Rs 25,000 for the home loan, bringing your total EMI commitment to around Rs 60,000 to Rs 65,000 per month.

Total Monthly Outflow:
You may want to consider your total outflow, including living expenses, EMIs, and any other financial responsibilities. It’s crucial to ensure that your monthly cash flow can comfortably accommodate all these commitments without stretching your budget.

Asset Depreciation:
A car is a depreciating asset. Over the years, its value will decline, and it will not contribute to your wealth-building efforts. Meanwhile, your existing investments like mutual funds, PF, and NPS will continue to grow in value.

Alternative Use of Funds:
The Rs 10 lakhs down payment could alternatively be invested in a high-return investment option. Over time, this could help you achieve long-term financial goals more effectively.

Assessment of Current Loan Situation

You currently have a home loan of Rs 9 lakhs, which is manageable. The property’s value (Rs 1.2 crore) far outweighs the loan, which is positive. However, adding another loan in the form of a car EMI will increase your monthly financial burden.

At present, you are paying Rs 25,000 per month for the home loan. If you go for the car loan, the total EMI commitment will rise significantly. It’s important to ask yourself if you are comfortable with this higher commitment.

Insurance Policies: Reviewing SBI Elite Scheme and Axis Policy

Both the SBI Elite Scheme and Axis Policy require attention. These are investment-cum-insurance products, and such products often do not deliver the best returns. They also come with higher costs and offer limited flexibility in terms of withdrawals.

SBI Elite Scheme: You have Rs 10 lakhs invested here. While it may have some insurance benefits, the returns might not be competitive compared to mutual funds or other pure investment products.

Axis Policy: You are paying Rs 1 lakh annually for this policy. Over 10 years, you will have contributed Rs 10 lakhs. It’s important to check if the returns are aligned with your goals.

Consider reviewing both policies with the help of a Certified Financial Planner to assess if continuing them is beneficial. If they are underperforming, you may want to consider surrendering them and reinvesting in more flexible and higher-return instruments like mutual funds.

Asset Allocation and Diversification

You currently have a good mix of assets, including:

Fixed Deposits
Provident Fund
Mutual Funds
NPS
Real Estate
However, it’s important to ensure that your asset allocation aligns with your risk tolerance, liquidity needs, and future goals. For instance:

Fixed Deposits:
While safe, they offer lower returns compared to mutual funds or equities, especially in the long run. As inflation rises, the real returns on fixed deposits diminish.

Provident Fund and NPS:
Both these assets offer long-term growth but have limited liquidity. They are ideal for retirement planning, but you cannot rely on them for immediate needs like the car purchase.

Mutual Funds:
Your mutual fund investments of Rs 10 lakhs are valuable growth assets. However, you could review their performance and consider reallocating to more actively managed funds for better returns.

Car Purchase: Is It a Risk?

To answer your direct question: Is buying the car right now a risk? Based on the analysis, here’s what I think:

Monthly EMI Burden:
The new car EMI will significantly increase your monthly outflow. It’s essential to ensure that you can comfortably afford this without compromising your savings or future investments.

Impact on Liquidity:
The Rs 10 lakhs down payment will reduce your liquid reserves. You still have FDs, but those might be tied up for long periods or may not give the best returns if broken early.

Wealth-Building Impact:
Investing the Rs 10 lakhs in growth assets like mutual funds could help you build wealth faster. A car, being a depreciating asset, will not contribute to wealth creation.

If the car is a necessity and you have carefully assessed your cash flow, you could go ahead. But if it’s a desire that can wait, consider postponing the purchase. Instead, focus on building more liquid wealth to cover future goals like your home loan repayment or emergency needs.

Final Insights

Buying a Rs 27-lakh car is a significant financial decision. While you have a strong financial base, the added EMI burden and liquidity impact should be considered carefully.

Your existing investments are solid, but there’s room for optimization. I would recommend revisiting your insurance-cum-investment policies. A Certified Financial Planner can help review these and guide you toward better investment strategies.

Consider delaying the car purchase if it’s not urgent. Use the Rs 10 lakhs for investments that could offer better returns over time. This way, you’ll strengthen your financial position and have more flexibility for future big-ticket purchases.

In short: Evaluate your monthly cash flow and risk tolerance. If you're comfortable with the increased EMI, go ahead. But, if you feel stretched, it’s better to wait and focus on building more liquid assets.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment