Sorry I am very old fashioned in this regard. I guess there are many things which people consider an investment, let me tell you the risk involved in the same.

1. Make a down payment and buy a house.

2. Commit to a target – and pay the money in installments

3. Do a SIP in a mutual fund (or buy equity shares every month).

All 3 look like investments, right? Well they are, but look closely, and the risk is very different in each one.

In the first case if you buy a house costing Rs. 2.5 crores – for which you have borrowed Rs. 2 crores, your EMI would be Rs. 2L per month. The house belongs to you when you pay off the 240th installment. Till then the house belongs to HDFC. IF FOR SOME REASON THE MARKETS ARE DOWN, AND YOU CANNOT PAY THE INSTALLMENTS, YOU WILL MAKE A VERY VERY PAINFUL EXIT. Not too many people appreciate this risk. Ask those people who lost their jobs while paying the installments, AND the property prices fell at the same time. You cannot even seamlessly move from a 3bhk to a 2 bhk and reduce the loan. People who have not suffered think there is no risk. Chuckle, chuckle.

2. Commit to a target – say you decide that you will invest Rs. 1 crore in a Venture Capital Fund over a period of 5 years, and this product has a lock in of 7 years. This means you will have to pay an instalment of Rs. 2 million a year. Assuming that you have paid for 3 years and you are now suddenly stuck with the ‘asset’. What can you do? NOTHING. Zilch.

The company will tell you ‘Sorry even the money that you have given i gone down the drain. What can you do? Nothing.

3. You are doing a SIP in a mutual fund: you have made a payment of Rs. 24L over a 2 year period. Suddenly you have a cash flow – the MONEY IS ALL YOURS. If the markets have done well you will get Rs. 27L and in a bad market you will get Rs. 22L…BUT your money is available to you. EVERY MONTH YOU ARE TELLING THE FUND HOUSE….’I have a surplus so please invest’. You can stop, increase, decrease, withdraw, ….to me THAT IS A GENUINE INVESTMENT, without any leverage risk…..

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  1. all our investments won,t beat the inflation,our spending will be above the inflation!
    that’s how 99% people are “poor dads”

    fixed deposit is tortoise, slow steady! house is “elephant”

    and all the elephants are nothing but “slow tortoise”

  2. Killer article again Subra Sir.

    The beauty of SIP in mutual funds gives peace of mind and you can focus on skills which are your primary money earners.

    The flexibility with Mutual funds is unmatched even with exit loads in consideration.

  3. Sir, I think its not just SIP or any other investment that fetches return in short term. Returns are for long runs. Hefty returns come only in long run. Like I had 600 shares of sun pharma in 1998. They become 12000 now. And was a wealth creator for me. PATIENCE IS THE KEY.I have written a article on same. I hope ur readers will find it useful and will get benefitted from the same.

  4. Kindly add Real Estate ( Land Investment) as fourth option and your views please. Yesterday my friend told me to liquidated all shares and bonds, And invest Agriculture land ( presently) in outskirt of chennai ( roughly 23L per acre) which has good potential to be an Housing land in 3- 5 years. I was clueless and i told him that my shares are meant for very very long term.

  5. Subra,
    I agree that buying a 2.5 crore with a 2 crore loan is not a good investment. But if someone wants to make an investment of 1 crore own funds and 1.25 crore loan to build a mini apartment with few flats on ones own plot(at current prices, plot could cost around 1.5 crore) instead of building a independent house on the plot, can this be advisable as a good investment with a rental income of 1.25 lakhs per month along with a spacious 4 BHK large flat(3000 SFT) for own use in the mini apartment. A 4bkh flat in the same vicinity goes for 1.75 crores.

    How should one evaluate investment returns in such cases?


  6. Nice article Subra. But there is always a negative bias in your articles towards RE.

    Any investment done with due diligence can make for a good investment, its the risk that has to be carefully contained.

    How about the people who did SIPs during the 2000s only to find the wealth eroded in the market crash. RE prices have crashed and recovered many times as well.

    There should be an open mind to any avenue of investment, the investor being aware of what they are getting in….

  7. Nishant

    Clearly it is YOUR lack of understanding. If you buy RE outright, it is a good investment, it is the leverage. Even in the investment in the VC fund Subra is not against the investing, it is against the LEVERAGED committment. Read carefully and read again…understand and then comment…


    we are DII for indian market,
    we have a capability to turn around market on our way.

    then why we wait for FII to invest in india???

  9. Vaibhavi: What Nishant is saying is with proper due diligence, even leveraged real estate can be a good investment option. And you don’t need to advice others what they should be doing (like understand and comment).
    There is always a polite way of voicing our views.

  10. Dev – I kind of like your comment regarding peace of mind and concentrating on primary money earning skills. To a large extent i believe you are right. But other than primary earning skills , investing skills are also important to generate a large corpus. SIP’s in (good) Mutual funds is just one of investing options that we must consider along with other options.


  11. Sorry Krish, I had to butt in. Vaibhavi is RIGHT. When you commit to a LEVERAGE, the risk is higher. I am not sure if that does not come out in the article – what V says is the way to look at risk. The risk of NOT BEING ABLE TO PAY is the risk. If you do not pay the SIP you cannot be prosecuted. If you do not pay the EMI (and the asset prices drop dramatically) your existing house, and other assets can be attached. Yes V can be more polite for sure, but her understanding is decidedly superior to the others on this thread….

  12. Chirag,

    I absolutely agree with you. In general, my circle and in particular myself was not exposed to financial investment avenues in early stages of life. I started investing in stocks and MF at same time very late.

    After 4 years, understood that stock picking its not easy as compared to mutual funds. I have burnt my fingers with my foolishness with some stocks and then started learning about value investing. There is a lot to learn ( and will never stop ) and if we devout time and energy, stocks can also be excellent. Determining what price to buy a stock is very tricky, where as SIP is no brainer :-).

    Now my MF portfolio is doing much better than stocks. Like Subra Sir has advised if we cant beat fund managers, go to low cost funds and invest time and energy else where. Going by Valueresearch data, it appears worst fund has delivered 12% p.a and best fund 24% p.a over last 15 years. If fund managers can stick to at least 15% over next 15 years, I am extremely happy, for the amount of time that I spend with MF.

    At the same time, I have now listed 20 to 25 value stocks and will wait for next crash to buy. If it never crashes, my SIPs will still smile.

    Of course there are other excellent investment options, but not each one comes with ease of mutual funds.


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