Indecisive About Mutual Funds Or Real Estate? Know Here What Trumps   Jul 27, 2018

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Mutual Funds-Real Estate

Is there anyone who doesn’t aspire to invest in real estate?

It’s a different issue that affordability is a concern for many potential buyers. Yet, people burn holes in their piggy banks to buy a property.

Anuj is one such person. He is 40 and works with a private hospital as the administrative head.

In the last two years, his fixed deposits worth Rs 15 lakh have matured. He has neither renewed these nor invested the proceeds elsewhere.

About six months ago, he paid off the entire home loan that commenced 15 years ago to purchase his primary home – the house in which he lives in with his family.


He wants to buy a second property worth Rs 45 lakhs, as an investment, and use the accumulated savings for the down payment.

Based on his income and expenditure patterns, he could easily get a loan of Rs 30 lakh from any financial institution.

But once he deploys Rs 15 lakh and starts paying the home loan EMI of Rs 30,480; he would hardly have any investable surplus.

[Read: Buying a house or staying on rent? – Take a wise decision]

Anuj plans to retire in 20 years and he has opted for a 15-year loan on the new property.

He feels after paying off the loan, the last leg of five years will be sufficient time for him to generate retirement savings. He anticipates that the children would be independent by then and this would ensure a surplus to build his retirement savings.

And the property he is buying right now, in his view, will grow four times in value. And even the rent income would be high enough for him to take care of household expenses post-retirement.

For him, this is a perfect financial plan.

For now, he thinks, the rent income would support his current household budget too. He doesn’t expect to switch his job since it offers him stability. However, the existing job won’t give him any significant rise in the pay.

And that’s the catch he doesn’t understand.

You can ask an ethical, unbiased, and a qualified financial planner and he/she will tell you how horrible this may turn out to be for Anuj, if things go awry.

Let’s look at the holes in Anuj’s existing financial plan

  • First and foremost, his asset allocation is heavily skewed towards real estate. Except for the Employees’ Provident Fund (EPF) and Public Provident Fund (PPF) savings, all he has are real estate assets.

  • He didn’t calculate the amount required at the retirement to maintain his existing lifestyle thereafter.

  • As a result, the projection to garner sufficient retirement savings in five years is unsteady.

  • The potential appreciation of the property’s value in Anuj’s estimation is based on his past experience. And he’s unqualified to understand traits of the real estate market.

  • While he expects to earn attractive rent income, he is ignoring the maintenance and depreciation factors of the property.

  • While rent may support his existing budget, he is not factoring in the impact of inflation on his subsequent monthly budgets.

Traits of real estate assets that Anuj is ignoring

  1. Investments in real estate are big-ticket, more often than not.

  2. Investment in real estate isn’t risk-free.

  3. Real estate assets can be illiquid and unless you are able to sell-off assets, it won’t fetch you much returns.

  4. Unless you bought the property much below the current market value, rent yields hardly match the interest earned on the savings bank account.

    For example, can a house worth Rs 45 lakh fetch you Rs 30,000 rent per month? Given the property rates nowadays, it looks extremely difficult. Properties located at the prime spots usually fetch such rental yields. And it’s difficult to buy a house for Rs 45 lakh at any prime location in the metro or even in tier-1 cities.

What should Anuj do?

  1. It’s high time for him to draw a personalised financial plan. Anuj shall take this task seriously.

  2. Anuj should assess his risk appetite.

  3. He should focus on personalised asset allocation plan.

  4. Anuj should diversify his portfolio across asset classes such as fixed income, equity, gold. His primary home, where he lives in cannot be considered for this purpose.

  5. He should reconsider buying a second house availing a home loan.

  6. Once he creates an investment portfolio based on his personalised asset allocation, and review it once in a year, he should be able to meet his financial goals.

Investing in equity-oriented mutual funds can be a good option for investors like Anuj. Historically, the stable equity oriented mutual funds have generated 12%-15% compounded annualised returns over the last 20-25 years.

If Anuj invests Rs 30,000 per month through a Systematic Investment Plan (SIP) option, in a small portfolio of equity-oriented mutual funds, his investment corpus might swell to Rs 1.5 crore over the next 15 years; assuming modest 12% compounded annualised returns.

And this is where equity-oriented mutual funds beat real estate:

  • Liquidity:  Investment in equity-oriented mutual funds is highly liquid.

  • Risk-Recovery: If you invest in a mutual fund scheme and you go wrong in estimation, you can sell off that scheme and invest in a worthy scheme. However, if you buy a wrong property it can mess up your finances.

  • Flexibility: Investing in equity-oriented mutual funds is highly flexible. You can stop your SIPs on short notice if it’s difficult to save money for any reason.

  • Return Ratio: If chosen correctly, equity oriented mutual funds can fetch you high-risk adjusted returns.

  • Easy Investment: You need not borrow money to invest in equity-oriented mutual funds since one can invest as low as Rs 1,000 per month.

How difficult is it to find a right mutual fund scheme?

For a person like Anuj who has never invested in mutual funds in the past, selecting a worthy mutual fund schemes can be a challenging task indeed, given the availability of options.

For anyone investing in mutual funds, it’s important to do thorough research. You should find out how the scheme has done so far across timeframes and market phases.

Don’t you think, your investments should do well when equity markets are doing well and shall protect the downside when markets are in a bad shape?

[Read:Why Selection Is Crucial To Make Solid Gains With Mutual Funds ]

[Read: 5 Bad Ways to Pick Mutual Funds – And One Good Way]

You should assess the performance of the fund house as a whole and consider the experience of the fund management team.

Understandably, this isn’t an easy job for an individual person, especially those for who aren’t knowledgeable about financial instruments.

Are you a person like Anuj and seeking help to plan your finances?

Don’t worry!

PersonalFN has made your job extremely easy.

It can handhold you to plan for a successful financial future. PersonalFN's investment advisors, who effectively serve as Financial Guardians, will always put your interest at the fore.

PersonalFN makes no compromise on research before recommending mutual fund schemes to investors. It follows a comprehensive rating methodology.

PersonalFN has a long track record of offering unbiased mutual fund research services. It analyses thousands of data points to shortlist schemes and also applies a whole host of qualitative parameters to select only a handful of schemes for your portfolio.

PersonalFN’s “The Strategic Funds Portfolio for 2025” is geared to potentially multiply your wealth in the years to come. After all, it is founded on a rare investment strategy only successful investors know. Subscribe now! 

Happy Investing!

How We Helped John Mario To Build An Ideal Mutual Fund Portfolio


John Mario, 29 opened his corporate innings with an IT company four years ago.

As a fresher, he earned a handsome package being an alumnus of the most prestigious engineering schools of India.

Since his career began, his sole aim was to work hard and party harder.

The last four years have been fantabulous for him.

His company twice deputed him to Europe as a project manager. At his age,  it was a big achievement for him.

He leased out an apartment and spent most of his savings on touring, staying at hotels, and buying costly clothing and accessories.

These days though, John is frustrated

To read more, please click here.

Your Mutual Fund Portfolio Should Be Like A Thali – Offering Variety And A Balanced Diet!


What’s most appealing about a Thali meal at a restaurant?

Is it the combination of taste, variety, and nutrition?  Is the cost-effective pricing for the amount of food?

On most occasions, a Thali offers you a range of options you don’t usually eat every day.

Dal-chaval, roti-sabji is the ‘core’ of Indian food. You might be a vegetarian, non-vegetarian, or a flexitarian, but how often has your meal not included these?

Of course, any Thali is incomplete without these ‘core’ food options.

While you enjoy your meal, shouldn’t you avoid overeating? Even if you have a sweet tooth, gorging on Indian desserts can be injurious to health in the long run, just as eating food that’s drenched in oil or overly salted can be.

To read more, please click here.

How Well Do You Know The Health Of Your Mutual Fund Portfolio? You Will Be Shocked…


Sanjay Vishwakarma, a 59-year-old retired private sector employee, invested about 15% of his retirement corpus a year ago in small-cap and mid-cap oriented funds. As on date, his average loss on these schemes are approximately 22%.

Additionally, he had invested 20% of his retirement corpus in Monthly Investment Plans (MIPs), anticipating monthly income in the form of good dividends every month. But he was shocked to see that not only have the dividends from these MIPs fallen; these are making losses as well.

[Read: Do MIPs guarantee monthly income?] 

As you might know, MIPs are a debt-oriented hybrid schemes which invest about 10%-25% of their Assets Under Management (AUM) in equities. For now, equities are giving jitters and debt portion of MIPs isn't doing well either—thanks to rising interest rates, rising trade deficit, weak Indian rupee, blazing oil prices, and likelihood of Current Account Deficit (CAD) and fiscal deficit increasing .

Sanjay is not new to mutual fund investing. In fact, he's made quite a few quid in equity markets by investing directly and through equity-oriented mutual funds.

To read more, please click here.

Markets On A High Again. Here's A Strategy To Follow Now

After witnessing sharp sell-offs in February and March, the Indian markets have been on the road to recovery since April. India’s most widely tracked index, CNX Nifty is hovering near its all-time high.

However, broader markets still appear lacklustre with many mid and small caps trading in the red. Let’s look at the table below:

Poor show…

Poor show
Data as on July 19, 2018
(Source: NSE)

Many investors are left with their portfolios  bleeding and self-proclaimed investment advisors cannot hide behind lame excuses anymore.

[Read: 7 Mistakes Mutual Fund Investors Make At A Market Peak And How To Fix Them]

The macro-economic picture and political landscape of the nation look a little shaky.

To read more, please click here.

New Fund Offer

Union Equity Savings Fund: Should You Invest In This NFO?

Union Equity Savings Fund (UESF) is an addition to the product basket of Hybrid funds from Union Mutual Fund (a 100% subsidiary of Union Bank of India) after Union Asset Allocation Fund (formerly known as Formerly Union Asset Allocation Fund - Moderate Plan).

Union Equity Savings Fund under normal circumstance will invest a predominant portion (65-90%) of its net assets in equity and equity related instruments including derivatives (viz. index futures, stock futures, index options, & stock options, etc.) and arbitrage opportunities (upto 40%), while the remainder will be parked in debt & money market instruments.

To read the complete note, click here.

Fund Of The Week

Is Franklin India Smaller Companies Fund Worth Your Money?

Franklin India Smaller Companies Fund is one such fund with a mandate to invest in stocks of small sized companies. Positioned as a predominant small cap fund, the fund primarily focuses on investing predominantly in small cap companies. However, it has been investing predominantly in small caps and mid-caps along with a nominal investment into large caps.

The strong investment processes, astute stock picking and sound risk management systems followed at Franklin Templeton Mutual Fund have contributed to the stability in its performance across market conditions. The popularity of the fund can be known from its size of over Rs 7,000 crore, which is huge for a typical small cap fund. No wonders, it is currently the largest fund in the small cap funds category.

To read the complete note, click here.


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Financial Terms. Simplified.

Sell-Off: A sell-off is the rapid selling of securities such as stocks, bonds, ETFs, commodities or currencies. A sell-off may occur for many reasons, such as the sell-off of a company's stock after a disappointing earnings report, the departure of a important executive or the failure of an important product. Markets and stock indexes can also sell-off when interest rates rise or oil prices surge, causing increased fear about the energy costs that companies will face. Sell-offs can also be caused by political events, or terrorist acts.

(Source: Investopedia)

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