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Planning to buy your dream house? Here’s how you can save enough

Planning to buy your dream house? Here’s how you can save enough

Planning to buy your dream house? Here’s how you can save enough
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By Anshul  Dec 23, 2020 6:36:54 PM IST (Published)

Buying a house is a lifetime decision that involves hefty investments.

Buying a house is a lifetime decision that involves hefty investments. Though there are several home loan alternatives available to facilitate the purchase, an individual still needs to save enough to pay for the down payment.

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According to Sahil Arora - Director, Paisabazaar, the down payment or the home loan borrower’s own contribution can range anywhere from 10-25 percent, or even upwards, of the price of the property, depending on the borrower’s credit profile, loan amount, etc.
For buying the ‘dream house’, an individual should first analyze their annual income and the size, type, and locality of the housing property that he/she wishes to acquire or construct. Only then time period can be decided.
People who are determined on taking home loans, as Arora suggests, should first estimate the down payment amount and use online Systematic Investment Plan (SIP) calculators to find out the monthly investment required for building the down payment corpus.
Similarly, Arora adds that consumers planning to buy their dream home without availing of home loans should first estimate the cost of the housing property and use online SIP calculators to find out the monthly investment and time horizon required to build the financial corpus for buying their dream home.
Now, let’s understand the investment strategy as per the time horizon
Buying a house within 5 years
According to Arora, those wishing to create the corpus for making a down payment or buying a new home within 5 years should invest in fixed income investment instruments like high-yield FDs/RDs of scheduled banks and/or in short term debt funds.
“They should avoid investing in equities as equity as an asset class can be very volatile for such short time horizons,” he advises.
Buying a house after 5 years
As equities beat fixed income asset class by a wide margin over the long term, Arora says, those having time horizons exceeding 5 years for creating their down payment or home buying corpus can invest in equity mutual funds through the SIP mode.
“They can top up their SIPs through lump sum investments in a staggered manner during steep market corrections or bearish market phases as witnessed during the months of March and April this year. As quality equities are available at attractive valuations during market corrections or bearish market phases, investing a lump sum in equities in a staggered manner during such market phases can sharply reduce their average investment cost and thereby, help investors in building their target corpus sooner," Arora suggests.
According to Rachit Chawla, CEO & Founder, Finway FSC, individuals with a long-term horizon can put 50 percent of their investments in SIP in Nifty, 30 percent in debt and 20 percent in small cap companies that are debt-free.
“Debt funds can give a yield of somewhere around 7 to 9 percent depending on which economical cycle the investor is in. Putting 20 percent of funds in small caps of companies that are debt-free is also helpful as in the long run they might also act as multi-baggers," Chawla believes.
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
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