I had booked a house in Greater Noida about 5 years back, and I had taken a home loan for the same. The house is complete now. My EMI is Rs15,500, till year 2023. While I do not plan to stay in this house, and the rental income will be very small, this is the only large asset I have in my name. Everything else is in my husband’s name. Should I sell the house or retain it? What factors should I keep in my mind?
—Bhavna Seth
The house which you have is an investment asset, i.e., it is not meant for your residential usage and prima facie your family already owns a house property.
Hence, you should consider it like any other investment. In case the asset class performs well and generates a return, you need to hold the same, else it is better to sell the same and reinvest in a better-performing asset class.
There is also a loan on the house property and assuming the rate of interest is 8.5%, there is a cost that you are paying to service the loan. This implies that the asset needs to generate at least the cost of borrowing along with the maintenance cost to break even. In the current times, the residential real estate market is not generating good returns and there is also no income in the form of rent. To make it even more difficult as the property is in possession and lying vacant there will be deemed rent applicable. While there would be no tax incidence as there is interest on housing loan, you need to decide on the merits of the investment.
If you are of the opinion that the real estate markets will pick up and more importantly your house value will go up, then you can continue holding the asset, otherwise you should consider selling it. And as far as the concern of owning investments in your name is there, the sale proceeds can be reinvested in your name. You can also become a second holder in your husband’s subsequent investments.
As the single parent of a 6-year-old boy, I want to increase the safety net for him in case something were to happen to me. In this regard, please advise on the following matters. While I have been putting Rs10,000 a month through the systematic investment plant (SIP) of a mutual fund for the past 1 year (Franklin India Prima Plus), I want to increase this by another Rs3,000 a month. Should I increase the amount in the same scheme, or choose another one? Also, should I make a Will indicating which asset is for what purpose (school education, medical expenses, higher studies), or simply nominating my son in the investments is enough?
—Name withheld on request
It is indeed good that you want to create a safety net for your child. Increasing the amount of savings for a bigger corpus is surely one of the ways to enhance the capital base. However, instead of having one equity fund in the portfolio, it is recommended to create a diversified portfolio with an asset allocation to large-cap, multi-cap and mid-cap funds. Equity is one of the ways to increase the capital base. It does carry risk and is a volatile asset class and hence the need of asset allocation. But to generate inflation-adjusted returns over the long term (which you want), equity is a recommended asset class. You can add a large-cap and a mid-cap fund to the portfolio. Funds like Birla Sun Life Frontline Equity, SBI Bluechip are recommended large-cap funds. Mirae Asset Emerging Bluechip along with Franklin India Smaller companies fund are good mid-cap funds.
Estate planning is an important aspect of any financial planning. And it is even more critical for single parents to ensure that adequate measures are taken to protect the ownership of assets for their children.
Will is an important tool enabling transfer of assets to your children and you need to appoint a guardian to take care of the assets on your child’s behalf. You should also consider appointing a power of attorney holder who can take decisions in case you are incapacitated to take any decision. In addition to ensuring adequate cash flows, life insurance, health insurance as well as disability insurance are few other essentials which you should be providing for.
Surya Bhatia is managing partner at Asset Managers.
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