Kavitha Menon's Blog

Real Estate investments with EMIs – Tread with Care Kavitha Menon kavitha@ppfas.com Akash works with a IT company and has a great salary package. He made his first investment in property using an EMI in early 2003. The property value had doubled by 2005 and he decided that property was the best investment to make. Since his salary too had doubled in the same time, he decided that the extra savings can go into another property by using, you guessed it, EMIs. Then the third one happened in 2007 and one more in 2008. Using a heady mix of personal loans, loans on existing properties and regular mortgage loan our friend had accumulated several crores of property .There was just one problem . He had practically 80 % of his salary going towards various loan payments. The liquidity crunch was severe. 2008 came in with recession and salary cuts in its wake. That's when the alarm bells started ringing. Real Estate investments unlike others have peculiar features 1. They involve large outlays

You probably have seen the advertisements. Its all over the place with many insurance companies offering a guarantee on the highest NAV of their ULIP scheme. ULIP funds invest in market listed securities which can be both equity and debt related. Since these schemes are long term in nature, investors invariably choose 100% equity allocations. Such investors had taken a huge beating during the crash of 2008 and have seen significant erosion in their investment values. This volatility had put off potential as well existing investors from committing more funds into these schemes. Now “Assured Highest NAV” schemes have been projected as the ultimate solution to market risk. You are guaranteed the highest Nav during a certain period, or fund value whichever is higher at the end of term. What sold to investors is the idea that the fund will be invested completely in equities and the highest returns from such an equity portfolio will be made available to them. This is not the truth. First let