You stay on rent and save the spare cash into a diversified equity Mutual Fund scheme. You invest in the Direct Plan of the mutual fund. The fund gives you 15% per year over next 20 years. There are many such funds which have done so in the last ten years.<\/p>\n
Following table is the cash flow in both options on an Yearly basis.<\/p>\n The summary is that you Value of MF holdings after 20 years becomes \u20b9 3,77,73,665 whereas the value of the House after 20 years is \u20b9 1,92,42,813<\/p>\n Benefit of MF over House = \u20b9 1,85,30,853.<\/p>\n We are assuming the monthly surplus is invested in one lumpsum at the end of the year. MF value will be higher if the surplus is invested each month.<\/p>\n Here is the bar chart view of how the Value in any given year changes over time.<\/p>\n One may argue that MF returns of 15% are very high. If you change it to 12% (very reasonable), then the surplus is 68 lakhs. And if you drop the 20 year return on Mutual Funds to 10% the surplus is still 11 lakhs.<\/p>\n Conclusion #1: <\/strong>Clearly staying on rent is better as far as the numbers speak.<\/p>\n Impact of broker commissions:<\/strong><\/p>\n If you do NOT invest in Direct Plan Mutual Funds, then broker takes about 1.5% commission. In such a case the surplus reduces from 1.85 crores to 1.21 crores. This means broker commissions are as much as Rs 64 lakhs!<\/p>\n Conclusion #2: <\/strong>Investing in Direct Plan Mutual Funds is far more profitable (to you, not the broker).<\/p>\n What about the Sentiment and Emotion?<\/strong><\/p>\n Of course one needs to weigh this with the emotional and sentimental reasons of owning a house vs renting. It is hard to say no when the heart wants to stay in \u201cYour Own House\u201d. But keep these other factors in mind too:<\/p>\n In such cases it makes sense to stay on rent and invest the surplus. When the time comes, you can buy a nice house in your choicest locality, after having explored the world!<\/p>\n Conclusion #3: <\/strong>It is a battle between the head and the heart.<\/p>\n Read more:<\/p>\n 3 Reasons to Switch to Mutual Fund Direct Plans – Jama<\/a><\/p>\n<\/figure>\n
<\/figure>\n
<\/figure>\n
\n