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Buying an under-construction property can be risky at many levels—there can be delays, or worse, the project can get completely stalled. Then, there are complex payment schedules to deal with if you opt for a construction-linked plan. That is precisely the problem that Mumbai-based Nitin Jadhav, 44, faced when he decided to upgrade to a bigger house for his family, consisting of his wife Neelam, 39, and 13-year-old daughter Ananya, and booked an under-construction flat after paying a down payment. The next sets of payments depended on the completion of various slabs in the building, but there were no fixed dates when he could make the payments, as is common practice in the real estate industry.

While he got his flat financed by a bank, which released money to the builders as and when the demand was raised for construction-linked instalments, he wanted to have enough liquidity to be able to pay these instalments himself. That’s when Nitin got in touch with Mumbai-based financial planner Amol Joshi, who completely restructured his existing monthly investments and introduced him to high-return investments like mutual funds.

He started the plan in 2014, when most of his investments were in fixed deposits and he contributed regularly to his Employees’ Provident Fund (EPF). He had also been sold an endowment insurance policy with an annual premium of 2 lakh. Neelam, who has a government job, had similar investments in fixed-return products.

One of the first goals the couple listed out to the planner was to be able to make payouts to the builder on their own so that they didn’t have a large home loan. To be able to meet this goal, they needed to invest in instruments that gave them higher returns than fixed-income products like FDs.

Joshi helped the couple start investing in market-linked products, which carried some amount of risk—something that Nitin had a mental block against—by making them understand how risk and returns went hand in hand. Nitin soon started investing in systematic investment plans (SIPs) of balanced and balanced advantage funds with a time horizon of 3-4 years to accumulate money to pay construction-linked instalments to the builder.

House on track

For the initial 3-4 years after booking the apartment, Nitin financed six of the slab payments through his bank loan, but the plan helped him finance the remaining two through his mutual fund investments.

Nitin saw an opportunity in the way the construction-linked instalments were spaced out. It gave him time to build a larger payment corpus so that he could pay directly to the builder. It also helped him reduce the total bank loan on which he was paying interest.

Four years of patient investing has kept Nitin’s home buying dream on track. The good news is that he didn’t have to take the entire home loan sanctioned to him because he managed to pay off most of the construction-linked instalments to the builder directly using his own savings. He has kept the rest of the home loan running to ensure he gets maximum tax benefit.

Other goals, changes

The other major goal they have is their daughter’s education. After they move into the new house, the rent from the existing house will become an additional source of income. The house will also be an investment with capital appreciation potential and can be used to fund his daughter’s education.

On Joshi’s advice, Nitin discontinued the high-cost endowment insurance policy he had and retained the term insurance policy he already had.

Both Nitin and his wife are covered by health insurance policies by their respective employers. Since Neelam is a government employee, she has a robust health insurance cover to bank on. Their daughter is also covered under their plans.

Joshi also helped them create an emergency corpus by investing in low-duration debt funds and by having a savings bank balance equal to about six months’ expenses.

The challenges

Nitin remembers periods of market downturns while he was investing in mutual funds. He would often receive alarming videos on WhatsApp messages about a potential recession emanating from the US. This is where Joshi stepped in and calmed his nerves. The relatively conservative asset mix chosen by Joshi also shielded him from the full impact of market volatility.

Nitin, however, does have a few regrets—he spent money for buying a new car and on doing an executive MBA course, which placed additional strain on his finances and were not really value for money. But all that is something he is now able to deal with. Moreover, he is looking forward to his grih pravesh (house-warming) in a few months from now.

Mistake I won't repeat

  1. Buying an endowment insurance plan

2. Spending money on cars and expensive courses, when it could have been invested instead

3. Investing only in fixed-income products like FDs

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