Hellopus
I am 40 year old married female and have a 1.5 year old daughter. Currently I am drawing 1.13 lakhs monthly. I have 28 lakhs in mutual funds, 10 lakhs in ppf, 26 lakhs in epf, 25 lakhs gold,20 lakhs in lic, 2 lakhs in fd, I am investing 60000 per month in various saving schemes. Now I intend to buy a property worth 1.30 crore. Shall I wait or invest. Am I in a position where I can pay monthly emi of 75000 for next 30 years.
Ans: You've built a strong financial foundation with your savings and investments. This is impressive, considering your current financial obligations and future goals. Let's take a detailed look at your situation and assess whether you should buy the property now or wait.
You earn Rs 1.13 lakhs monthly, and have substantial investments:
Rs 28 lakhs in mutual funds.
Rs 10 lakhs in PPF.
Rs 26 lakhs in EPF.
Rs 25 lakhs in gold.
Rs 20 lakhs in LIC.
Rs 2 lakhs in FD.
You also invest Rs 60,000 per month in various saving schemes.
Monthly EMI and Financial Stability
Purchasing a property worth Rs 1.30 crore will require a significant monthly EMI. If we assume an EMI of Rs 75,000 for 30 years, let's evaluate if this fits into your current financial structure.
Income and Expenses:
Your monthly income is Rs 1.13 lakhs. Deducting Rs 75,000 for EMI, you’ll have Rs 38,000 left for other expenses and investments.
Understanding Your Expenses
Your current monthly investments total Rs 60,000. After accounting for the EMI, it’s essential to ensure your remaining income covers your living expenses, savings, and unexpected costs.
Emergency Fund
An emergency fund is vital. Ideally, you should have 6-12 months of expenses saved. With Rs 2 lakhs in FD, consider increasing this fund to cover unforeseen expenses. This ensures financial stability without disrupting your EMI payments.
Assessing Investment Allocation
Mutual Funds:
You have Rs 28 lakhs in mutual funds. Mutual funds are versatile and offer potential growth. Ensure your portfolio is diversified across equity, debt, and hybrid funds to balance risk and return.
PPF and EPF:
Your PPF and EPF balances are Rs 10 lakhs and Rs 26 lakhs respectively. These are safe, long-term investments providing assured returns. They are also excellent for retirement planning.
Gold:
Gold worth Rs 25 lakhs adds stability and acts as a hedge against inflation. However, its returns are generally lower compared to other investment options.
LIC:
With Rs 20 lakhs in LIC policies, evaluate the performance and returns. If these are investment-cum-insurance policies, consider surrendering and reinvesting the amount in mutual funds for better growth.
FD:
Your Rs 2 lakhs in FD is a good start for an emergency fund. Ensure you have sufficient liquidity for emergencies.
Cash Flow and Loan Eligibility
Given your current financial commitments, paying a Rs 75,000 EMI might strain your cash flow. It's crucial to maintain a balance between your loan repayments and daily living expenses.
Impact on Lifestyle
Evaluate how a high EMI impacts your lifestyle. You must comfortably manage your expenses, investments, and future needs without financial stress.
Benefits of Waiting
Waiting to buy the property can provide several benefits:
Increased Savings: Allow more time to save, reducing loan amount and interest paid.
Market Conditions: Property prices may stabilize or fall, offering better deals.
Financial Cushion: Build a stronger financial cushion, reducing the burden of EMI.
Power of Compounding in Mutual Funds
Investing consistently in mutual funds harnesses the power of compounding. Over time, even small investments can grow significantly. This can enhance your financial stability and provide substantial returns.
Diversification and Risk Management
Diversifying your investments across different mutual funds reduces risk. Balancing between equity, debt, and hybrid funds helps manage market volatility and provides steady returns.
Mutual Fund Categories
Equity Funds: High risk, high reward. Suitable for long-term growth.
Debt Funds: Lower risk, stable returns. Ideal for short to medium-term goals.
Hybrid Funds: Mix of equity and debt. Balanced risk and return.
Advantages of Mutual Funds
Professional Management: Managed by experts, providing better growth opportunities.
Liquidity: Easy to buy and sell, offering flexibility.
Diversification: Reduces risk by investing in a variety of assets.
Tax Benefits: Certain funds offer tax advantages under sections like 80C.
Potential Risks
Market Volatility: Equity funds are subject to market fluctuations.
Credit Risk: Debt funds carry the risk of issuer default.
Interest Rate Risk: Affects bond prices and, consequently, debt funds.
Reassessing LIC Policies
Evaluate your LIC policies. If they are investment-cum-insurance, consider surrendering them. The amount can be reinvested in mutual funds for better returns and flexibility.
Future Goals and Planning
Your financial planning should align with future goals like your daughter’s education and marriage. Ensure your investments are structured to meet these goals without straining your current finances.
Creating a Balanced Portfolio
Your portfolio should balance risk and reward. A mix of equity, debt, and hybrid funds provides growth and stability. Regularly review and adjust your portfolio to align with your goals and market conditions.
Certified Financial Planner
Engage with a Certified Financial Planner to tailor a financial strategy. They provide personalized advice, ensuring your investments align with your goals and risk tolerance.
Final Insights
Buying a property is a significant decision. Evaluate your financial stability, future goals, and current commitments before proceeding. Ensure you maintain a balance between loan repayments and living expenses. Waiting might provide better financial security and opportunities.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
