My wife and I are both 34 years old and live with my parents in a flat in our native town. We had taken a joint home loan of ₹30 lakh to buy the flat for my parents. The loan was for a tenure of 30 years and the EMI (equated monthly instalment) was ₹25,000. We used our emergency fund and repaid the loan in four years. We draw a net salary of ₹1.2 lakh each, every month. Both of us invest ₹3,000 separately for our daughter’s education and our retirement. We will be rebuilding the emergency fund in six months, but are looking for good investment options to park this fund. Next year, we will be shifting to a rented accommodation in a metro city as we return to office. How can we build a corpus of ₹1 crore to buy another house in a metro city in 10-15 years?
—Name withheld on request
For accumulating emergency funds, we would suggest you to invest in liquid or ultra short mutual fund schemes. You can even consider investing in arbitrage schemes where you will get the benefit of equity taxation. We recommend that one should have an emergency fund that covers six months’ worth of expenses. When it comes to your goal of creating a corpus to buy another house in the next 10-15 years, we would suggest you invest in equity mutual fund schemes across different categories through monthly SIPs (systematic investment plans).
We would like to consider certain assumptions here. Every month there will be an SIP of ₹20,000 each between you and your wife, which will be stepped up by 5% every year. The expected returns are assumed 10% annualized, which is conservative considering historical performance in equities.
With these assumptions, you can achieve a corpus of ₹1 crore in the next 10 years. An increase in the investment amount and a higher-than- estimated return on investment may help you reach your goal earlier. Please note that these calculations are based on the assumptions and information provided. You may consult with a financial advisor for personalized advice.
Vijay Kuppa is chief executive officer of InCred Money.
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Updated: 11 Oct 2023, 09:42 PM IST