Easy to do vs Correct to do….
Amazing how people can do WRONG things, just because it is convenient.
Had been to a friend’s house and his wife told me that they had redeemed some mutual funds to pay an EMI. I was quite perplexed because he had not told me about the new asset acquired – a Rs. 2.4 crore house in Gurgaon.
As usual I probed. He was on a business trip to Gurgaon and saw an offer – Rs.40L down payment and the balance in installments, and possession in 2016. The builder had told him that he would take money on a Quarterly basis, and he thought he would meet it from his salary by stopping the SIPs. So he did stop his SIPs, and started keeping money in his savings account.
However the construction was faster, his wife made a trip to the builder and had suggested changes worth Rs. 10 lakhs, the interiors had to be done (approx another Rs. 20L) – all this was taking his toll.
SO THE WITHDRAWAL FROM HIS mutual fund. I asked him he said “market is very high, so I pulled out” – first time this guy was having a ‘market’ view in his life!
I did not mind his 69% allocation of assets to Real Estate, I did not mind anything…but asked him a few questions..and here are his replies:
1. Why did you withdraw from your mutual funds – debt, equity, and balanced funds (gold left intact)?
Ans: Withdrawal was very easy! I printed the form signed it and couriered it. In 2 working days the money was credited to my account.
2. Why did you not withdraw from your Endowment plan?
Ans: It was too much of a hassle – I had to fill up some forms, and they would charge interest on the borrowings, etc. I thought it was too painful
3. Why did you not encash your National Savings certificate, withdraw from your PPF or own PF?
Ans. ——–ditto———- to 2.
4. Do you plan to live in Gurgaon?
Ans. No, of course not. We will give it on rent.
5. To give on rent, why are you spending Rs. 20L on the internal furnishings?
Ans. The broker said ‘Nobody will take on rent unless you have the basics like a kitchen set, airconditioner, etc.
Seriously I have no comments, happy to receive YOUR comments and feedback…
Chandrakumar
Awesome. How much rent that 2.6 Crore house is going to fetch ? What will be his rate of Return ? I think its not even going to match F.D return.
Sujit
Subra Sir,
On a different note, but a similar predicament. An FD matured, want to put it in Liquid Fund, being paying a lot of TDS lately. Does it make sense to put Lumpsum in Liquid Fund? Or this too warrants a SIP?
The Equity SIP’s are going on as usual, this is the part of emergency fund and first time trying out Liquid Fund.
Your thoughts will be helpful.
subra
depending on the amount. If the amount is Rs. 300,000 – put in a liquid fund and do a STP of Rs. 1000 a month into an equity fund. Thus it will remain at Rs. 3L for a long time.
Yes a lumpsum into a liquid fund makes sense. Also a portion of the money can be in a higher duration fund – like a corporate bond fund, but MAKE SURE that the duration is 2 years or lesser…
Abhijit
Well, your this post gives another proof that Indians are highly obsessed with Real Estate!
Sujit
Thank You Subra Sir,
sandeep
this is the situation with most of the people. you can replace Gurgaon with Kochi or TVM or Bhubneshwar etc etc. I think people are not comfortable with liquidity. They like to be tied down.
ANAND
hi, I felt sad for the person but not surprised. This also highlights that the system of withdrawing or borrowing from the endowments, pf etc should be simplified. Once again we can see a total conspiracy in the system. Dumb investments – Make it difficult to use during needs, Good investments – Make it easy to use for any use whether required or not from an economical point. If our Government is serious about revenue generation, they must start taxing the estates and estate transfers. By this people will start thinking rationally and take decisions on investments. All the unaccounted money getting into the real estate will also get loosened. Any way it is my personal opinion.
tsashok
In India almost 99% people are investing in Real estate and jewels..
Nothing can be done..
Anon
Some of my colleague/friends had done these
1)1 guy Took a personal for down payment & a home loan to buy a house
2) another one bought a car last year as he had spare cash & his employer is giving subsidy on car loan. This year took some loan for down payment & a home loan
But the thing is their homes had appreciated more then the interest they paid to their personal loans. So if I was advised against personal loans for down payment I will be looked like a fool. Only time will say