Housing loans are like children begot with pleasure, but bought forth in pain. Buying a house is a joy, but, the time it really takes to own it, is a pain. Until the last EMI is paid, it is a loan house, not your own house. You can pay back your 20 year loan in 11 years. Paying off early gives an option to own a second home, which will support you with a rental income on your retirement.
By adding 20% of the EMI amount and saving the same as SIP’s in Equity based mutual funds will ensure that you have a corpus equal to the loan balance at the 11th year. Pay off your loan from this corpus and make your loan house your own house.
How this works?
If you have a housing loan of 25 Lakhs & your loan EMI is Rs. 25000 per month. Along with paying the EMI, add 20%, that is Rs. 5000 and save it though SIP’s in Equity Mutual funds. On the 134th month, that is., 11 years and 2 months into the tenure the loan balance will be Rs. 17.19 lakhs. On the same date your Mutual Fund SIP value will be Rs. 17.14 Lakhs. Redeem the investment and clear the loan.
What is the rate of return on your investment?
It has been calculated at 15.00% per annum. Following table will be a proof for the same.
The compounded average growth rate for the SENSEX from the period of its inception (Mar-1979) till Dec- 2013 is 16.65%. Average returns will overtake the probability of loss on any investment that exceeds 7 years tenure. The probability of loss becomes zero from 10th year onward, while the returns show a constant increase.
In this 35 year period we have had 2 international wars (Iraq & Afganistan), 2 of our prime ministers assassinated (Indira & Rajiv Gandhi), 5 Stock Market Scams, 1 historic International terrorist attack (9/11) & an historic recession in 2008. In spite of all these disturbances and uncertainties, our economy has had the above growth.
If a plain vanilla investment into SENSEX can have a zero risk and 10.14% return on investment for a 10 year period, a little extra effort in identifying the Mutual Funds that have their investments in the best companies along with the Rupee Cost Averaging due to SIP’s will ensure 50% extra returns, which is above 15%.
The average returns of a Rs. 10000 SIP into one of the best known Mutual Fund Scheme (HDFC Top 200) from May 2004 to 2014 is as follows
| HDFC Top 200 Fund (G) | |||
| Investment Period | Jun 10, 2004 to May 10, 2014 | ||
| No of Investments | 120 | ||
| Total Amount Invested (Rs) | 1,200,000.00 | ||
| Total Units Purchased | 10,541.31 | ||
| Investment Value as on May 10, 2014 | 2,870,989.30 | ||
| Latest NAV | 296.00800 (as on May 22, 2014) | ||
| SIP CAGR | 16.87% | ||
Bravisa Templetree’s research facility helps us in identifying the best performing Mutual Funds which assures returns that are far above the SENSEX average. We help channel your investments into the best performing funds. Hence, you not only pay your home loans early, you also have the opportunity to have a second home without much effort and have a regular rental income throughout your retirement years.
Similar kind of investments can be structured for life time goals like Retirement, Children’s education, wedding etc., By planning and beginning early you have all the possibility to live your life King Size.
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