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Investing in mutual funds versus buying a house

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I am 35 years old and working for a PSU where I have to stay near my work location which is far from the cities I would like to settle in until I retire.

My question is, should I buy a house now in my favorite city or should I invest money in mutual funds to build a corpus to buy a house 20 years later. If I buy an apartment now and rent it out, it will become obsolete until I move in. If I do not buy, I may have to retire a large portion of the corpus to buy my dream home.

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This is always a difficult choice to make when it comes to buying a home today or later considering that you may not use the home purchased for years. Much depends on where you want to buy your nursing home and how prices have gone up in the past. Growing real estate in India is subjective and the price increase is not only different from city to city or locality to locality but also to apartment or plot. Here are some points to consider before deciding on your next step regarding buying a nursing home.

• Real estate prices and rental yields in many cities and towns have been stagnant for years, how was it for the city where you want to buy a house

• The down payment amount and loan amount you need to take for this property, even though the interest rate is low today, may not continue to be so low in the coming years.

• Your preference over the type of home may change by the time of retirement

You have more than two decades to retire, and if you start investing in mutual funds as well as in your retirement home from today, ideally you should be able to build a reasonable corpus for both of these purposes. The estimated cost of the property at retirement based on today’s price and the potential for price growth can help estimate the future cost of the home. When investing in mutual funds each month for a long-term purpose, you may consider 10% growth each year. So for the purpose of your calculation, you can calculate the corpus by assuming a 10% annual growth in your down payment value and a monthly EMI for 20 years if you invest instead of buying a home today. In my opinion, if the cumulative investment amount is higher than the future cost of the property, you can invest in equity funds and then buy your home when you are about to retire, as it not only gives you the amount to buy your home at, but also helps you decide what type of home and where you want to settle. In the future as the world continues to progress daily. When you follow this approach, you can check these two numbers regularly and then call in the future as well.

On the other hand, many people prefer to build their retirement home during their working life because they find it more convenient with the help of an apartment loan and a fixed income alongside the tax benefits. This can be helpful if you are very unsure where to settle after retirement and do not want to bear the stress of buying a property near your retirement. As stated earlier, this is a subjective decision but some of the points and calculations above can help you make a more informed decision.

Answer by Harshad Chetanwala, Founder of MyWealthGrowth.com

(Do you have any personal financial queries? Email mintmoney@livemint.com)

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