35, Govt. Job: Is My ₹1.8Cr Home Purchase Plan Sound?

Ans: . It’s wonderful to see how carefully you’ve considered different sources of funds and how your financial planning reflects your thoughtful approach. Let me review your plan comprehensively, addressing each aspect and providing a 360-degree assessment to ensure your financial stability and long-term wealth creation goals remain intact.

1. Your Current Income and Loan Details
Your monthly in-hand salary is Rs 1.70 lakhs.

You plan to take a company-provided soft loan of Rs 1.25 crores.

The EMI is Rs 70,000 per month over a 25-year period.

The EMI is about 41% of your monthly salary.

Insight: An EMI that is under 50% of your monthly income is considered manageable and does not overstretch your finances. Your plan stays well within this limit, showing prudence.

2. Your Proposed Own Fund Sources
You plan to arrange Rs 55 lakhs from your own resources:

Rs 15 lakhs from mutual funds (portfolio of Rs 36.61 lakhs with 17.26% XIRR).

Rs 5 lakhs from fixed deposits.

Rs 30 lakhs from your EPF corpus (Rs 60 lakhs total).

Rs 5 lakhs from your demat account (stocks and Sovereign Gold Bonds).

Insight: Using multiple sources can be a wise way to avoid overburdening any single asset. However, let’s evaluate each fund source for its impact on your long-term stability.

3. Withdrawal from EPF Corpus
EPF is a critical pillar for your retirement.

It offers compounded, tax-free returns over the long term.

Withdrawing Rs 30 lakhs from the Rs 60 lakh corpus means you are using half of your retirement-focused savings.

Insight: This move may seriously impact your retirement corpus. Though you are eligible to withdraw for home purchase, this significantly reduces the pool that would support your retirement.

I suggest considering whether you can reduce this withdrawal amount. Keeping your EPF corpus intact allows it to grow and support you in your retirement years.

4. Impact of Mutual Fund Redemption
Mutual funds are currently giving an XIRR of 17.26%, which is a strong return.

Selling Rs 15 lakhs of these funds will reduce your future wealth accumulation.

Selling will also trigger capital gains taxes:

For equity mutual funds, long-term capital gains above Rs 1.25 lakh are taxed at 12.5%.

Short-term gains are taxed at 20%.

Insight: By redeeming well-performing mutual funds, you lose out on compounding and higher future wealth creation. Moreover, paying taxes on gains reduces the net amount you receive, making it less efficient.

5. Utilisation of Fixed Deposits and Demat Account
Using Rs 5 lakhs from fixed deposits is logical as they generally offer lower returns.

Redeeming Rs 5 lakhs from your demat account also makes sense if these assets are not high-performing.

Insight: Liquidating fixed deposits and less productive assets is a smart move. This preserves more promising investments like mutual funds.

6. Emergency Fund Planning
It’s vital to ensure you have a dedicated emergency fund even after this home purchase.

Typically, 6-12 months of expenses should be set aside in highly liquid instruments.

Insight: If you use all your available resources without maintaining an emergency fund, it could put your finances at risk during unforeseen events. Be sure to retain enough liquidity to manage emergencies or unexpected situations.

7. Potential Risks of Your Plan
Using half of your EPF corpus can leave you under-prepared for retirement.

Selling mutual funds that are performing well can compromise future financial growth.

Not keeping an emergency fund could put you in a tight spot during a crisis.

Insight: Balancing your immediate need for the home purchase with your long-term goals is crucial. Let’s explore alternative ways to make this happen.

8. Alternative Strategies to Strengthen Your Plan
Here are some ways to reduce the burden on your high-performing assets:

Minimise EPF Withdrawal: Try to limit how much you take from EPF. This way, your retirement plan remains largely unaffected.

Increase the Home Loan Amount: If possible, increase your loan slightly. Home loan rates are typically lower, and this would help you preserve your retirement corpus and mutual fund investments.

Negotiate for Phased Payments: Check if the property seller is willing to accept payments in phases. This gives you more time to plan your fund mobilization and might reduce the immediate pressure to liquidate investments.

Consider Partial Mutual Fund Redemption: Instead of withdrawing Rs 15 lakhs all at once from mutual funds, see if you can use smaller amounts over time. This ensures that the best-performing funds continue to grow.

Utilise Underperforming Demat Holdings: If there are stocks or bonds in your demat account that are not yielding satisfactory returns, prioritise using those funds before touching the better-performing mutual funds.

Insight: By exploring these strategies, you can protect your retirement and long-term financial growth while still achieving your immediate goal of home ownership.

9. Liquidity and Future Financial Flexibility
A healthy liquidity position means you can meet your family’s needs without panic.

It also gives you the power to seize future investment opportunities.

Insight: Avoid draining all your investments now. Retain flexibility so you’re not forced to borrow at high rates later or sell assets in a poor market.

10. Reviewing Your Portfolio Strategy
Mutual funds are actively managed by professionals. Their active monitoring ensures that your investments are handled well and diversified.

If you were investing directly in direct funds without guidance from a certified professional, that could be riskier. Direct funds may save you small costs, but you miss out on expert insights and disciplined investment planning that a certified financial planner and mutual fund distributor provide.

By sticking with regular plans through a certified mutual fund distributor, you get ongoing portfolio reviews and access to updated advice.

Insight: Stay focused on using the expertise of certified professionals who understand the market’s movements and can help rebalance your investments. This prevents costly mistakes and ensures sustained growth.

11. Avoid Real Estate as an Investment Option
Real estate investments can be illiquid.

They can involve high maintenance and transaction costs.

They may not offer returns that match the compounding potential of mutual funds.

Insight: Since you are buying this property for residential use, it’s fine. But avoid viewing it as a wealth-building vehicle compared to your mutual funds and EPF.

12. Importance of Professional Advice
Working with a certified financial planner can give you a clear, holistic perspective. They can help you:

Reassess your portfolio balance.

Structure the home purchase funding in a way that preserves your future wealth.

Ensure your retirement goals remain protected.

Prepare for future family needs, like children’s education or healthcare costs.

Insight: Having a professional eye ensures that every financial decision aligns with your unique needs and long-term dreams.

13. Finally
Your plan reflects a clear focus on home ownership, which is commendable. But it’s essential to ensure that your retirement dreams and wealth-building goals are not compromised.

Consider these points:

Reduce EPF withdrawal as much as possible.

Use more of your low-yield assets like fixed deposits and underperforming stocks.

Protect your mutual funds that are delivering strong returns and helping grow your wealth.

Keep an emergency fund untouched.

Explore if you can slightly increase your home loan, given its lower interest cost, to reduce pressure on your best investments.

Work with a certified financial planner to craft a 360-degree strategy that keeps your financial future safe.

You have done excellent groundwork. Small adjustments will ensure your home purchase brings joy without worries for the future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment