by PrognoAdvisor, Financial Planning
01 Oct , 2018

Is it possible for me to buy a land and construct a house?

Ramesh is an interior designer from Calicut, Kerala. He is aged 39. His wife is a home maker. They want to buya piece of land and construct a house in 5 years. The expected cost in today’s value is Rs.45 lakhs. Currently he can set aside Rs.12 lakhs for the goal. Further, he can save Rs.5000 every month towards this goal. He has investments in mutual funds, chit and life insurance plans. He wants to know if it’s possible to achieve his goal and if so how to go about?

Ramesh’s situation was analysed and provided him strategies and advice to achieve his goal as given below:

Requirement

 

 

 

 

 

Cost of buying land and construting house in today's Value

₹ 45,00,000

Cost after 5 years assuming price change @ 10% p.a.

 

₹ 72,47,295

Resources Available

 

 

 

 

 

Assets set aside for the goal in today's value

 

₹ 12,00,000

Monthly Savings that can be allocated to this goal

 

₹ 5,000

Suggested Asset Allocation

 

 

 

 

Assuming Moderate Risk Tolerance and Short time horizon the following asset allocation is suggested to deploy the assets allocated for the goal and to allocate the savings



Rate of Return expected annually from the suggested asset allocation

11.20%

Analysis

 

 

 

 

 

 

Value of Assets set aside for the goal after 5 years

 

₹ 20,40,352

Value of Savings allocated for the goal after 5 years

 

₹ 3,75,157

Total resources available at the time of goal

 

₹ 24,15,510

Shortage at the time of goal

 

 

 

₹ 48,31,785

Strategies

 

 

 

 

 

1

Take a home loan for the amount equal to the shortage. Assuming a home

 

Assuming loan interest rate of 10%p.a for 20 year period the EMI will be Rs.47628

2

If this is not possible then plan for a smaller house

 

Where to Invest?

 

 

 

 

 

a

Out of the Rs.12 lacs assets, invest Rs.3.6 lacs in diversified equity funds, invest

 

Rs.4.2 lacs in dynamic bond funds and Rs.4.2lacs in cooperative bank fixed deposit.

a

Out of the Rs. 5000 monthly savings, start SIP of Rs.1500 in diversified equity fund,

 

SIP of Rs.1750 in a dynamic bond fund and Rs.1750 in cooperative bank RD account

a

Review the investments and SIPs once in every year

 



The above case study is for illustrative purpose only and is not a recommendation or advice for a similar situation you might face since there are many other factors which will require a different approach to your situation.
 

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