How an IT couple realized their dream of a bigger residence

Moving to a bigger three- bed room flat with their two kids is one thing that Gurgaon-based IT professionals Keshav Prasad and Mohini Latha had been planning for a very long time. Part proceeds from the sale of their outdated flat, together with a house mortgage, helped them obtain this—they moved into their new residence in 2015.

Building a corpus for his or her retirement and for his or her kids’s training are the 2 key long-term targets of the 45-year-old couple. With this in thoughts, they’ve been investing largely in debt merchandise and to some extent, in fairness. Their danger notion has, nevertheless, undergone some change after having engaged a monetary advisor for the final eight years. From nil publicity a couple of years in the past, fairness now accounts for 10% of their present portfolio.

Mint reached out to the couple and their monetary information, Amit Kukreja, a SEBI-registered funding advisor to know their private finance journey.

Financing a brand new residence

“We’ve seen most of our buddies placing all the cash they get from promoting their older flat into shopping for a brand new one. This leaves nothing for investing for the longer term,” remarks Prasad. Based on Kukreja’s recommendation, Prasad and Latha used solely a part of the sale proceeds from their outdated flat to purchase a brand new one in Gurgaon. The relaxation was used for constructing a contingency fund which they felt was crucial, particularly on condition that they each have non-public sector jobs. Also, taking a mortgage to half finance their flat buy helps them every declare a deduction of ₹2 lakh for curiosity paid on residence mortgage. According to Kukreja, given this tax profit and solely a 30-35 bps rise in rates of interest up to now, he isn’t but recommending mortgage pre-payment to them.

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Following Kukreja’s recommendation, Prasad and Latha opted for a house mortgage curiosity saver account too, which they’ve discovered helpful for parking any surplus and, in flip, decreasing their curiosity burden. With this facility, the curiosity will get calculated on the excellent mortgage quantity minus the stability within the present account. At the identical time, one has the flexibleness to withdraw the cash each time wanted. But, the speed of curiosity itself might be sometimes 50 bps larger than what it could be for a house mortgage with out the curiosity saver account.

Currently, the couple is paying off two residence loans, one taken in 2013 (earlier than they met Kukreja) and one other in 2015. The first one was used for purchasing a flat of their hometown in Andhra Pradesh.

Building a security internet

The IT couple has earmarked the cash within the residence mortgage curiosity saver account together with some debt fund investments as their contingency corpus. This covers them for 9 months’ price of bills. Normally, individuals park their contingency funds in fastened deposits and debt funds.

In addition, they’ve every taken a life insurance coverage cowl, and a household floater well being coverage. The latter is along with the well being cowl supplied by their employers. “Amit emphasised on having insurance coverage first after which focussing on constructing a corpus for our long-term targets,” says Prasad. It’s additionally on Kukreja’s suggestion that they gave up their earlier-bought endowment insurance policies and acquired time period plans as an alternative. He guided them on how insurance coverage merchandise weren’t meant for use as investments for lengthy and short-term targets.

Prasad feels that with the 2 residence loans that they need to repay, and the truth that their company well being cowl will keep solely so long as their jobs stay, having sufficient life and well being cowl makes loads of sense.

Diversification, tax effectivity

Portfolio-wise, whereas their allocation remains to be debt-heavy, the couple has moved from investing solely in fastened deposits to debt mutual funds (direct plans), making their portfolio extra tax environment friendly. Long-term capital beneficial properties (holding interval of three years or longer) from debt funds are taxed at 20% with indexation profit versus fastened deposit curiosity earnings which is taxed at a person’s earnings tax slab charge. Prasad and Latha not maintain any fastened deposits and their debt portfolio includes investments within the Employee Provident Fund (EPF), Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (SSY) aside from debt funds. The two are specific about making their PPF and SSY investments proper initially of the monetary 12 months to earn the utmost potential curiosity.

Their fairness investments (solely 10% of their portfolio) are unfold throughout giant cap, fairness linked financial savings scheme (ELSS) and multi-cap funds, and the nationwide pension system (NPS). “While we do need our investments to develop and beat inflation, we don’t need to danger shedding our principal,” concludes Prasad.

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