Buy a House

Most of us when we start working start thing of it saving to secure a future. What is the future? Getting married, buying a house having children, their education, their marriage and then retire. At every stage you need money and as you keep spending there is no money left at the time of retirement.

We talk of retirement corpus or investing in retirement plans etc. to get regular income. Why not think of buying a second house for retirement purpose, to give you steady and regular income.

You might say, it is costly, yes it is. That is because you looking to buy in the same locality or vicinity of where you are staying. Look at places just at the outskirts of the city. As cities grow, these outskirts will become part of the city and the property price will appreciate, with that the rental income as well.

But don’t wait till you become 60 to buy the second property. Property prices rise, but they rise slowly, it has been noticed that it takes around 10 years to get a good return from your property. If you invest today and expect a high return forget it. If you get around 5 to 6% return in the form of rental income it will be great.

Remember the second property you purchase is for generating income after retirement not now. What do you do when you invest in a retirement plan? you leave the money to grow with the investment company till your retirement age.

Just as with retirement plans there is a risk. The value of the property might not grow. So what do you do? You do a little research and check the prospects. Some clues like a new airport would be coming up. Yes the airport would take 10 year to come, but when it comes the value would rise. Since when the airport comes, jobs will come and the people working there need a place to stay and the property prices go up, so will rental income.

As history shows, property prices have never gone down, it is on a one way road, up.

If you had invested early in property, then in bad times like when the economy was down and you lost your job, the income from this property will help you scrape through.

If you have a little more money, land would be a better option. Between land and an apartment, land always gives better returns.

So what are you waiting for? Start investing.

CRR hike – where to invest

In the last article we read about RBI credit policy. We say that it does impact us. Now let us take one case CRR. What is CRR? CRR is Cash Reserve Ratio. It tells the banks what percentage of its deposit should be parked with the central bank. A few days back, the RBI announced that the CRR has been increased.

So what will happen because of this? It will reduce the liquidity in the market. What would happen now is persons and companies taking loans have to fight for the reduced balance of liquidity. So slowly the interest rates will start to rise. Though banks at present are saying it will not have an impact.

So what should I do to increase my returns? What are my options? Let us look at some of them.

Fixed Deposits: With liquidity becoming less and demand still being there, banks will want more deposits to make more money, so bank interest rates will rise.

Short and medium term debt funds: These funds look attractive with interest rates poised to move up. These funds have low risks and if you are ready to keep your funds in fixed deposits of up to a year, then these funds would make sense. Getting your money out is also easy. But unlike banks it would take from 3 to 7 days to get your money back. Also there is no lock in period. But note that withdrawal before a year will attract short term capital gains.

Fixed maturity plans: If you are ready to lock in your money for up to 2 years, these funds would give you attractive returns.

Medium to long-term funds: Long term debt funds give good returns and they are quite safe. But there would be an element of risk depending on how the interest rates move. The capital would be safe; the risk would be interest rate risk.

Equity funds: The last quarter results from most of the corporate were good, even with so much uncertainty in the economy. With the market following, this would be a good entry point. Note that mutual fund investments are for long term, so don’t start crying if the markets fall. Look at a horizon of 3 to 5 years. Note that with interest rates going up the borrowing costs of companies will go up, this will put pressure on their profits.

The Budget will also influence the market. So the question is, is this the right time or should I wait for the budget. Note that you are not investing in the stock market, as a long term investor, don’t try to time the market. It will only increase your anxiety.

A point to note, please check the fund house’s track record while investing, as ensuring the safety of your capital is more important than the possibility of making money.