Jayant R. Pai CFP and Head – Products, PPFAS Mutual Fund replies: Assuming you live up to the age of 80, earn an inflation adjusted pre-tax return of 1.88% a year and do not intend to bequeath, you will require a corpus of Rs 1.20 crore the day you retire. Also, assuming you require the other Rs 1 crore also on the same day, you will have to accumulate a sum of Rs 2.20 crore over the next 15 years. Assuming you already have savings of Rs 50 lakh, which earns a return of 6%, it will grow to Rs 1.20 crore by 2035. You will now need to save around Rs 42,000 per month at a pre-tax return of 6% until the age of 55 to accumulate the residual Rs 1 crore. Given the time frame involved, you may consider equities /equity mutual funds. Alternatively, long-dated fixed deposits of top-tier banks may also help, by reducing your reinvestment risk.
I took a Rs 28 lakh home loan at 9% interest from IDBI Bank in March 2019. This was for a plot and to build a house on it. The loan meant for the plot was disbursed, the rest was to be released in tranches. I bought the plot and planned to construct a house within 6 months, which I could not do. Now due to Covid my financial situation is worse. As per the home loan policy, I have to construct a house within two years of the release of the loan, or they will slap a higher interest or some penalty. How do I resolve this situation?
Raj Khosla Founder and Managing Director, MyMoneyMantra.com replies: Your bank will ask you to either to close the land loan and face a penalty, or continue with a higher rate of interest. However, due to the pandemic, you can get respite by applying for extension of construction tenor for 1-2 years. This will ensure that the EMI burden is not immediately escalated. Now you must be servicing interest only, on part disbursement for plot purchase. Once the construction amount is disbursed the EMI will increase exponentially. As a first step, avail tenor extension and judiciously utilise the allotted time to re-align your finances for construction in the coming months. Apply for disbursement of construction loan only when your cash crunch eases. Ensure the loan account remains standard throughout the period, thus keeping the option of loan switching for a lower rate interest from another bank open.