4 Ways To Save Money For Down Payment
Down payment is one single component of property buying cost which causes prospective home buyers to take a step back from making a purchase. Down payment is the initial outright amount that a buyer has to give to the developer during the onset of the purchase of a home. This is usually 20-25 per cent of the total cost of buying and is non-loanable i.e. banks do not offer loan on this part of the payment. Thus, the buyer has to arrange for this sum of money.
Since this is a big amount that a buyer has to pay to the seller, it becomes difficult to stay disciplined and save. So, if you are planning to buy a home but unable to save enough, Propguide lists few alternative investment channels, where you can invest cash and liquidate it whenever you are ready to buy:
Recurring Deposit (RD) is a term deposit offered by banks for a customised period of time. One can save a fixed amount every month for a desired period of time and can earn interest. These are ideal for those with fixed monthly income. The interest payable is comparable to fixed deposits. However, if the interest earned is more than Rs 10,000, you will be liable to get tax deducted at the source or TDS. Term deposits are more suitable for beginners who want to be disciplined savers.
Systematic Investment Plans or SIPs
Systematic Investment Plans is an investment vehicle to invest in mutual funds. However, the amount invested is in small amounts to be invested periodically. This can be one of the safest ways to save for down payment, earn returns up to 20 per cent, encash market performance and get it liquidated whenever needed. SIPs are more suitable for those working professionals who would like to bet on stocks but want to stay in a risk-free environment. SIPs are useful for medium- to long-term investment purpose as the returns generated will be far more visible and higher than what you will get if you exit the market in two-three years.
High-interest online savings account
An online savings account is a new trend in Indian market where banks offer 'online only' account. These accounts offer higher interest rate than brick-and-mortar alternative. Almost every private bank is coming up with this offering where the user is offered with online infrastructure rather than the physical one. Since there is less operational cost linked with such kind of accounts, the rate of interest is usually the double on a savings account. Alternatively, you can negotiate the deal with the bank.
Public Provident Fund or PPF
Public Provident Fund (PPF) is another investment tool which is risk-free and also, saves tax. If you have a regular monthly income, you can contribute some amount to your PPF account. You can take a loan against this amount for three years at an interest rate comparable to those offered by banks. However, there are few regulations and limitations associated with these kinds of accounts like loan amount cannot exceed 25 per cent of the deposited money, the maximum loan tenure is 36 months etc.
Tags: propguide, Finance, Recurring Deposit, SIPs, Online Savings Account, PPF