Buying a second home as an investment asset or for living post retirement is a time tested piece of advice that stands on its own merit. Away from the hustle and bustle of city life, a second home can also serve as the ideal location for your annual family vacation or even when celebrating a special occasion. In terms of the financial investment required, buying a second home is a significant commitment.

Depending on your risk profile amount required and time available, you can opt for a number of mutual fund options to fund the purchase of your second home.

Here’s how you can make the most of mutual funds for buying a second home:

Pre-booking:

If you need immediate funds to book your ideal property, you can now look beyond your current or savings account. With a short term liquid mutual fund, you can not only earn above average returns on investment but also ensure easy availability of funds at short notice.

Down payment:

If you are about to conclude the purchase agreement in the near future, you can also opt for investing in liquid funds. As they invest primarily in debt assets and mature over a short period of 91 days, they give you better returns than bank fixed deposits. Being open ended, you can invest in and withdraw from these funds at anytime.

Even if you are still in the process of finding your ideal property, you can redeem your investment within 2-3 business days, depending on the terms and conditions of the fund that you have invested in. If you are a moderate risk taker, investing in a log duration bond fund can help you earn up to 12% interest in a year.

Regular EMIs:

In order to regularly pay your monthly home loan EMI, you can opt for an income fund that leverages relatively low risk assets such as bonds to provide you regular returns on a monthly or quarterly basis. These funds can help you pay your EMIs comfortably. Also, should additional funds such as a bonus or raise become available; you can utilize them to prepay your home loan.

Pre-payment:

For all the benefits a home loan provides from a purchasing power perspective, it is a liability in the long run. A loan worth Rs. 40 lakh and an interest rate of 8.60% carries an interest component of Rs.41,18,378 over a tenure of 20 years. Taken annually, the interest amount payable for the first year is Rs. 3,19,709. Leveraging a large cap equity fund as well as regular incentives, you can save a substantial amount of interest and prepay your home loan faster.

Explore Various Mutual Funds here.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product.  Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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