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How to Build Corpus to Buy First Home?

IndianMoney.com Research Team | Posted On Thursday, November 28,2019, 03:38 PM

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How to Build Corpus to Buy First Home?

 

 

Owning a house is a goal that most of us pursue. But the cost of realising this dream is huge and thus it constitutes a major financial decision of our lives. Not only we need proper planning but we also need to incorporate its cost into our budget without affecting our lives.

So instead of purchasing the home by liquidating your savings, availing a home loan is a more viable option. But a down payment of the house is indispensable for a home loan. The size of the down payment and the mode of creating it depends on your financial circumstances and you preferred investment choices.

Ideally, you must consider investment vehicles that will work in your favour and help you get a higher rate of return that beats inflation. For example, if you are planning to purchase a home in the next 8 to 10 years then you must invest in equity-based instruments to build an attractive corpus rather than debt-based investment tools. Not only you will be able to get returns by getting a higher rate of returns but you will also benefit from the compounding of the principal and interest income.

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How to Build Corpus to Buy First Home?

In the past, purchase of a home was an endeavour taken up by people when they reached close to their retirement years. People used to save money all their life to fulfil this dream.

But with changing times, people in their 30s or late 20s can fund the down payment of their homes.

In a home loan, you need to personally fund a part of the total cost. You need to fund this payment either by liquidating your savings or investments. Having decided on your home, you need to set aside some funds despite your pressing financial commitments.

Firstly you must decide the year in which you can afford to purchase your home. An early start will help you save more amounts. For example, if you start planning at the age of 25 years you will be able to save a considerable amount for funding your home down payment in the next 8-10 years. But you must plan by evaluating the financial instruments available in the market to help you build this corpus. Usually, the banks fund 80% of the value of the property, so you need to plan for the remaining 20%.  Secondly, decide on the loan amount. Make sure it can be easily accommodated within your income so that you can pay your EMIs at ease.

See Also: Home Insurance A Must Have? Home Is The Shelter From Storms - IndianMoney.com

Best Investment Options to build a corpus:

As per financial advisors, equities investments can give exponential returns and help you to build wealth over the long term. You can take the mutual fund route to build a good corpus. You can start a SIP or invest a lump sum amount to pay a good down payment. You can get returns ranging from 10% to 15% depending on the funds you invest in and the investment tenure you have in mind.

-Large Cap Fund:

Large-cap fund refers to a category of mutual fund that pools money from investors and invests a major proportion of the corpus in companies with large market capitalization. Large-cap companies are trustworthy and reputed business institutions that are established companies with a good market record.

These companies are known to have a stable business and are less risky from the investment standpoint. These businesses help investors generate corpus slowly but steadily over the long term. Not only you get value on the units you purchase but you are also likely to get dividend payment. These are ideal investment options for investors who want equity exposure but do not want the returns to fluctuate more than the market. However, you need to remain invested for a considerable timeframe to generate a good corpus.

See Also: What is Home Insurance?

-Mid-Cap Fund:

Mid-cap funds are the ones whose market capitalization lies in the segment of Rs. 500 crores to Rs. 1000 crores. So, mid-cap funds usually invest a major portion of its corpus in the stocks of these mid-cap companies. These funds are known to generate benchmark beating returns when the market conditions are favourable. 

Investors who are looking for an avenue to generate wealth within a short tenure and are capable of taking risk can invest in mid-cap funds. These funds are capable of generating high returns as they are volatile on the stock market index. If you are ready to face the volatility of stocks as an investor then you can invest in these funds in expectation of higher returns.

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