Let us get it right, the real rich do not borrow. Never ever for personal expenses, buying assets or personal INVESTING. Borrowing and investing is a very foolish thing to do for most people.

Will a Mukesh Ambani or a Kumar Birla take a personal loan to buy shares?

Tough to answer this question? No. Never.

You borrow for doing business – yes, but you do not borrow to invest. That would be foolish. In a market like this it is very tempting to borrow in the US (thanks to the low cost of $ funds) and invest in India, right? well, wrong.

What then is safe leveraging? Is there anything called safe leveraging?

Yes I have a friend who has a Rs. 80 Lakh salary and NO Emi to pay. All his earnings are converted to SIPs. Thanks to his good equity portfolio he also has an equity dividend income of about Rs. 7 lakhs and his wife has an interest income of Rs. 4 lakhs and dividend income of about Rs. 4 lakhs. He also has about Rs. 40 lakhs in 4 ppf accounts.

Extremely debt averse he said ‘I will not want an EMI on my head’. Correct, perfect thought.

I showed him how he could leverage to buy an asset. He wanted to buy a flat worth (second flat, completely unnecessary but his wife does not listen to him or to me!! and her brother was buying – ab to izzat ka sawal tha!!

So I got him to sell some shares (about 3 months ago, and he is happy because the scrips have come down in price (I had no clue that this would happen), he then broke some bank fixed deposits (his wife’s income goes down!), and now his EMI is less than his dividend income!

THIS IS SAFE leveraging! If his income from business falls he can still pay the EMI…from his dividends….right?

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  1. Sir, Please give some examples where people have 10 lakhs salary, house wife and parents to support. Seems only rich can leverage what about common middle class not super middle class. Could you share some examples. I believe unless one or two generations have really worked hard, saved a lot and yes really lived well below their needs then next generation can do above things.

  2. Hi Subra,
    Do you think middle class people having income of say 5L/annum can buy a house without borrowing.

    Yes, He has to put down some down payment from his savings but most part has to come from loan. Then he can pay it … otherwise if he waits to own house with only his money, I doubt most of them cannot afford till they are in 50’s.

    Do you think can we exclude home loan as exception(provided EMI is reasonable within his capacity)?


  3. Subra works with only big shots. This blog is not about poor people earning 10L. But Subra dont feel bad, inspite of this, I don’t start my work without going thru this blog.

  4. I really like this information of money movement from Salary to equity and then some converted to EMI for a grand house. But this is dream for me which I dont relate to with 13 lac salary at 35 . Where will i go for if I my wife ask for a decent 2bhk house in a city without I borrow from Banks?!. IF I wait for 20 years for my SIP to give 10 % CAGR to give money for Flat purchase ,the same locality house cost also would have risen at minimum 15% per annum and would be in rented house just as I am currently. All my friends who started off with me has a house in chennai/bangalore which appreciated more than my SIP in last 8 years.

  5. Subra Nice One.. but I too have the similar doubt which chaitanya/Shankar have asked…
    Really interested to know your views….

  6. Subra sir,

    In one of your earlier post I had a query can you please answer it –

    When it comes to investing we say that inflation errodes the capital but when it comes to loan, inflation is generally not considered.

    If interest rate on loan = inflation rate , does that mean we get to use that money for free? Please let us know your thoughts?


  7. @PrAvEen: Agree 10L may be little on higher side, although it took me well 17 years to reach here. Hope you will reach soon. Let’s start with my first annual income of 48000 per year. Now can you or Subra let us know how the above principles can be applied. Not sarcasm I am very serious.

  8. why do people with 10 lakhs income want to leverage to buy a house? leverage can be safely done only for those whom the downside is minimal.
    why is buying a house on extreme leverage considered an acceptable behavior? why is buying a house you cant ‘afford’ considered an acceptable risk. it is not.
    those who dont have the money,should not leverage.

    abhay,yes -the lender is taking the inflation risk instead of the borrower when inflation risk = interest rate.so the borrower got a good deal -as long as he can safely make the interest payments

  9. Chaitanya, as regular readers would have known, subra stays in rented apartment and doesn’t fancy about buying a house. But let us not get into that argument of buying or renting a house. Let us assume that buying a decent house is good for us. 17 years back at 5 lakh per year salary, i am sure you could have saved 50,000 per year. If not, you would not have lived within your means. Now if you had invested that in PPF and increased the contribution by 5% every year, then in 17 years, you would have had 28 lakh rupees in PPF. In another 5 more years, this would have become 51 lakh rupees. Now isn’t that sufficient to buy a house? Over the years, I have come to strongly beleive that anyone who earns reasonable salary (ex; today’s 25 year old getting 6 lakh per year), can easily save SOME money and if he invests that even in a slow growing PPF, he will have good amount after 20 years. TIME is the biggest asset he has. Money can compound to unimaginable amount over long period.
    Another point I would like to say here is, considering the tax benefit one gets on the interest paid on house loan, it is NOT a bad idea to buy a house/apartment as long as one can pay about 60% of the cost upfront from his past savings.

  10. @chaitanya I didn’t wrote that in response to you but I wrote it in general which I obsevrve in my office. Ya, I completely agree with you that even a gud salary of 10L is looking pittance when we live in a metro & have dependents.

  11. chaitanya: I didn’t wrote that in response to you but I wrote it in general which I obsevrve in my office. Ya, I completely agree with you that even a gud salary of 10L is looking pittance when we live in a metro & have dependents.

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