BackDon’t switch from SIPs to real estate just because loan rates are low
You shouldn’t buy a house only because interest rates are low and because stock market returns are currently poorer than you expected
PremiumI am 29 years old and have been investing in mutual funds since 2017. My returns have come down due to covid-19. While I believe that sticking to systematic investment plans (SIPs) will yield good results over the years, my father thinks otherwise. He has suggested that I should buy a house and divert the SIP amount of ₹19,000 into paying equated monthly instalments (EMIs), as interest rates are at an all-time low. Will that be the right move?
—Yayati Gaikwad
Real estate as an investment is illiquid. You will be unable to monetize the property should you need the money. It is also not necessary that the property price appreciates enough to ensure a reasonable return for you. So real estate is not a sure-fire route to great returns. In any case, if you buy property to live in, it becomes more of a consumption than an investment since you’re not going to sell it unless circumstances demand you to do so.
You can buy a house if: one, you’re certain you’re settled enough in your career that you won’t switch cities as that makes it hard to manage a property. Two, the EMIs will not be an unmanageable portion of your surplus, as it is a very long-term commitment and needs to be met regardless of fluctuations in your income. Three, the EMIs will not constrain your ability to continue with such equity and debt investments. Four, you have enough investments in mutual funds, stocks, fixed deposits and other such more liquid instruments, to help you reach your financial goals and to fall back on if needed.
In essence, you shouldn’t buy a house only because interest rates are low and because stock market returns are currently poorer than you expected. Equity requires a long time-frame of at least six-seven years to truly begin delivering well.
Srikanth Meenakshi is co-founder, PrimeInvestor.in. Queries and views at mintmoney@livemint.com
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