The real estate sector has been off the boil for some time, but buying a home still remains a very expensive proposition. Bank loans are one way to go about financing your property but even then, you’d have to pay one-fifth of the total amount in one go, known as down payment. And the down payment amount is not paltry either. It could run up to a fair few lakhs of rupees. Therefore, to achieve your dream of buying a home, you need to start saving for the down payment. This is how you can go about building a corpus:
1. Savings Account
This is the most convenient way a salaried person can opt to build a corpus over time. These accounts are easy to open, but the interest rate banks provide are on the lower side. Typically, banks in India offer interest rates in the range of 3-6%. A few banks do go a notch higher to 7% if a high daily balance is maintained.
2. Recurring Deposit
This is your go-to option if you want a risk-free scheme for your savings. It is easy to maintain and will inculcate a monthly savings discipline. You need to decide the monthly amount and the tenure for your recurring deposit scheme. If you do it online, the monthly amount will automatically get deducted from your bank balance. The interest rates range from 6.25-7.9%, depending on the amount deposited every month and the tenure.
3. Mutual Funds
If you have an adequate risk appetite, equity-linked mutual funds may be an ideal option. There are various funds that offer different interest rates and risk exposures. These funds perform as per the markets and generally give good returns in the long run. Typically, the annual returns vary from 8- 20%. Don’t worry if do not have much knowledge about the stock market. Consult a good financial advisor who can help you in making the right decision. Ideally, you must invest in a fund that has a healthy mix of large-cap and small-cap stocks. Start investing via Systematic Investment Plan (SIP). It will automate your savings and will also bring in a savings discipline.
It is also important to note that it is better to not dip into your retirement or emergency funds. It may allow you to corner-cut your way to building a large corpus to buy a home but you may rue your decision in times of medical or financial emergency.
Similarly, taking a personal loan may seem attractive. But be careful because they can be expensive due to high interest rates. Therefore, it is always better to take time to build your down payment corpus instead of repaying multiple loans later.