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How Can Equity Mutual Funds Make Your Dream Home Come True?

Highlights

  • Looking to buy a home in the near future? Invest in equity mutual funds to accumulate the sum for down payment
  • The scope for faster capital appreciation in equity funds can make it easy to arrange the sum for home purchase

Buying a home remains one of the dreams that all of us want to make it a reality. But one may have to pay anywhere around ₹25 lakh to ₹1 crore or even beyond, depending on the type of accommodation they want to purchase. You can thus invest in the power of equity mutual funds to buy the property of your choice. These funds allocate the assets across the high-return proposition of stocks, thus heightening the scope for greater surplus over time. Let’s check out through this post how equity fund returns can enable a home purchase.

How Can Equity Funds Ensure Home Purchase in Conjunction with Loan?

Firstly, home loans are not financed fully by lenders in India. They usually grant loans at 75%-90% of the property cost. You need to pay the remaining 10%-25% from your pocket. This portion is called down payment. Usually, lenders grant loans up to ₹30 lakh, ₹30-75 lakh and above ₹75 lakh at up to 90%, 80% and 75% of the property cost, respectively.

Assume you have figured out a property whose cost is ₹50 lakh now. You need to give yourself some time before you can buy this property if you don’t have the required savings. So, if you want to buy in 5 years, the cost can be ₹60-65 lakh by then. In case the property cost turns out to be ₹60 lakh over the next 5 years, you can get a loan up to ₹48 lakh. You can request the lender to provide an additional ₹2 lakh surpassing the conventional 80% finance generally offered in this loan range.

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Look to accumulate the remaining ₹10 lakh over the next 5 years by investing ₹15,000 monthly via a Systematic Investment Plan (SIP). At an assumed annual rate of 12%, you can accumulate a corpus of around ₹12.40 lakh. This will help you purchase your dream home in association with a home loan.

Which Equity Mutual Funds Should You Invest in to Arrange for Down Payment?

You should look to invest in a top-performing equity fund that must have performed well for at least 5-10 years. Check out below the table showing a list of funds you should look to invest in to arrange the down payment.

Equity FundsRating5-year Return10-year Return
SBI Small Cap Fund5 Star17.86%
Mirae Asset Large Cap Fund5 Star12.46%16.05%
DSP Midcap Fund4 Star12.39%16.48%
Franklin India Prima Fund4 Star11.92%16.64%
HDFC Mid-Cap Opportunities Fund4 Star11.07%17.81%

Note – The data is sourced from Value Research as on August 7, 2019, and pertains to the regular plan of the schemes shown above.

Conclusion

Investing systematically in mutual funds via SIP can make it so easy to realize your home dream, isn’t it? Yes, the loan will be there for 20-30 years, depending on the tenure you ask for. Simply making the down payment from the SIP surplus is not enough. You can continue to invest in mutual funds via SIP and accumulate the sum over the long term to prepay the loan much before it runs its original lifetime. This will greatly reduce the interest burden on you.

Disclaimer – “Mutual fund investments are subject to market risks. Please read the scheme document carefully before investing”