Skip to main content

A second home can be a good investment avenue

 

   IT HAS become more or less a set pattern now for middle-aged people, mainly above 40 years, to consider seriously, buying what is called a 'second home' or a 'holiday home'. In fact, many exhibitions are being organised by builders and developers urging people to go for their second home, a little far away — may be at an hour or two drive — from their homes.

   A second home is not a bad idea. It can serve the purpose of a change from the routine, once in a while, and leave you refreshed and energised. It can be a wise investment. But nobody should go overboard on this. It would be wiser to consider the following points before one goes for a second home:

1. These properties are not exactly cheap. Realty prices can slide.

 

2. Often, it is difficult to ascertain if the quoted price is reasonable because of a lack of benchmark rates. Many places are being developed for the first time and, as such, there is no way to determine if any previous deals have been done and if so, at what price.

 

3. It is easy to buy such property but it could be very difficult to sell it. Hence, if you are considering a second house as an investment then you should be careful about liquidity.

 

4. If you are buying the property out of borrowed funds then you should ensure that monthly outgoings by way of EMIs and such other fixed commitments on borrowed funds do not exceed 50% of your income net of taxes. Otherwise, all your life you will be forced to work for EMIs and you may not, in the real sense, enjoy this second property. An asset acquired through borrowing can turn out to be a liability if the asset prices were to fall or if the interest rates were to rise.

The intelligent option would be to decide on an asset allocation plan keeping with your age and risk appetite. While the first house is a necessity, the second house is taken into account in one's net worth. This is a risky asset in the sense that the returns on this asset — rent, if any, and capital appreciation — are uncertain and hence a second house is classified as "equity" while working out the asset allocation plan. If your age is around 40 years and if you are not wary of taking risks then your asset allocation can be along the following lines:


Fixed Income options like PF/PPF/Bank FD, etc. 30%

Equity/real estate  (shares/mutual funds) 60%

 

Gold 5%

 

Liquid investments like bank deposits 5%

   If you are conservative in your attitude and approach, then the ideal equity allocation, including investment in a second house, could only be around 40-45% of total assets with increased allocation to fixed income options and gold.

   You can definitely consider investing in a second house keeping in mind the factors of price, liquidity, affordability from EMI perspective, access from your current home and most importantly, whether it fits in your asset allocation depending on your risk profile.

 


Popular posts from this blog

Franklin India High Growth Companies Fund

Franklin India High Growth Companies Fund Online One of the key developments that the Street is keenly waiting for is a cut in interest rates by Reserve Bank of India . With demand rising gradually, a rate cut is expected to boost earnings growth for companies. In such a situation, schemes which invest in high growth companies are best suited, especially when seen from a long-term perspective. One such scheme is Franklin India High Growth Companies Fund. Fund managers Anand Radhakrishnan, Roshi Jain and Srikesh Nair strictly follow valuation parameters when it comes to choosing stocks.Valuation parameters, such as enterprise value, price-to-earnings growth ratio, forward price-to-sales ratio and discounted earnings per share, play a critical role in selecting companies for investments. Taking into account these parameters, the fund managers invest in companies which are poised for high growth in their respective sectors. This approach has been in favour of the scheme and it has perform...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Avoid NFOs

  Don't get taken in by the flurry of new fund offers. You will be better off sticking to the tried and tested schemes.   For the past one year, to cash in on the bull run in equities, mutual fund houses have gone on a new fund offer (NFO) overdrive. But experts are unanimous in their advice: avoid NFOs . While past performance is not an indicator of how a fund will fare in the future, it does tell the investor how skilful the fund manager is. This crucial information is missing in an NFO. Not only is there no track record to judge an NFO by, many NFOs are similar to funds that already exist. If the new fund is similar to existing funds, you are better off investing in the latter. Around 67% of the new launches in 2014 were closed-end products. Investing in the NFO of a closed-end fund is doubly risky. In case the fund's performance is lacklustre, a closed-end fund does not allow you to exit. Even though closed-end funds are listed on the stock...

Debt Mutual Fund Dividends are Taxable

DDT is deducted when a non-equity fund declares dividends. Equity and balanced fund dividends are tax-free The AMC is correct to deduct the dividend distribution tax (DDT) as it is mandated by tax laws. DDT in mutual funds is deducted every time a non-equity fund declares dividends. Equity fund and balanced fund dividends are tax-free . It is possible that you have invested in a non-equity fund for the first time or have received the dividend under a non-equity fund for the first time. That is why this is the first occasion when you have come across DDT.   The rate at which non-equity schemes deduct DDT has also gone up after the July 2014 budget. This is due to a change in calculation methodology. Earlier, if the fund has to declare a dividend of R 100, it used to make a provision for R 128.3, paying R 28.3 to the taxman and distributing the balance to the investor. This allowed the investor to bear less tax since the effective tax rate was 22.07 per ce...

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now