Let’s say you to want to buy a home in the next few years worth Rs 1 crore. You will need to account for:
- Downpayment: An amount of 15 -12% or Rs 20 lakhs to make the down payment.
- Income Tax Proof: that you earn enough to pay the monthly EMI’s on the balance loan of Rs 80 lakhs or about Rs 70k per month.
Most folks who want to buy a home earn enough to pay the monthly EMI of Rs 80 but usually don’t have Rs 20 lakhs for down payment. A SIP can help you accumulate enough money over the next 5 years to makeup the shortfall in downpayment as well.
Okay, But How Do I Go About It ?
Step 1: Assume that you have already bought a house today.
Step 2: Start a SIP in Mutual Funds for the amount that you would have paid as EMI.
Instead of paying a loan EMI of Rs 70k, you invest that money in a monthly SIP. If you continue doing this in balanced equity fund , you can have approximately:
- Rs 36 lakhs at the end of 3 years, or
- Rs 68 lakhs at the end of 5 years.
Now, you not only have more money for downpayment but also have some left over for interior decorations.
But wait, what about house rent of Rs 20k that I have to pay every month ?
Yes, if you are paying house rent and cannot afford to invest Rs 70k, let’s look at the alternate scenario scenario. Rs 50k can become:
- Rs 22 lakhs at the end of 3 years, or
- Rs 42 lakhs at the end of 5 years.
You can also do this for a lumpsum amount that you may have currently in your bank account or fixed deposit as your returns over the next 3 to 5 years will be much better compared to savings account or fixed deposit.
The earlier you start planning and saving AND investing for a house the LESSER you will need at the time of buying your house.