Investing in Mutual Funds vs Buying a Home

My question is, should I buy a house in my favorite city now or should I invest money in mutual funds to create a corpus to buy a house after 20 years. If I buy a flat now and rent it out, it will be out of date by the time I come. If I don’t buy, I may have to spend a huge chunk of retirement funds to buy my dream home.

Name withheld on request

When it comes to buying a home today or later, it’s always hard to consider that you may not be able to use a home you’ve bought for years. A lot depends on where you want to buy your retirement home and how prices have risen in the past. Real estate growth in India is subjective and the increase in prices varies not only from city to city or locality to locality but also for flats or plots. Here are some points you should consider before making your next move about buying your retirement home.

• Real estate prices and rental yields in many cities and towns have been stagnant over the years, how has it been for the city you are looking to buy a home in

• The down payment and loan amount you have to take for this property, even though the interest rate is low at present, may not decrease in future years.

• Your preference on home type may change until you retire

You have more than two decades to retire and if you start investing in equity mutual funds for your retirement as well as your retirement home from today, you should ideally have a single target for both these goals. Must be able to create proper corpus. The estimated cost of the property at the time of retirement based on today’s price and potential value addition can help in evaluating the future cost of the home. When you invest in equity mutual funds every month for a long-term goal, you can consider an increase of 10% every year. So for the purpose of your calculation, if you invest instead of buying a house today, you can calculate the corpus by assuming 10% p.a. increase in the value of your down payment and monthly EMI for 20 years. In my view, if the accumulated investment amount is more than the future cost of the property then you can invest in equity funds and buy your house when you are nearing retirement as it not only helps you to buy your house at that time Rather it also helps you to decide what kind of house and where you would like to settle in future as the world is progressing every day. When you follow this approach, you can review both of these numbers regularly and then call in future as well.

On the other hand, many people prefer to build their retirement home during their work life as they find it more comfortable with the help of a home loan and tax benefits as well as a steady income. This can be helpful when you are absolutely sure of where to settle after retirement and don’t want to take the pressure of buying a property closer to your retirement. As stated earlier, this is a subjective decision but some of the points and calculations above can help you make a more informed decision.

Reply to Harshad Chetanwala, Founder of MyWealthGrowth.com

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