Given the huge supply and depleting demand, one needs to be cautious about real estate investments today, warns Rakesh Makkar, Executive Vice-President and Head - Rural and Urban Business, Fullerton India. He shares his views on his personal investments.

What is your investment philosophy?

I’ve always tried to ensure that I receive better than average returns on my savings along with sufficient protection of capital for contingency.

To achieve this, I believe in spreading my investments across debt (including PPF), equity and real estate.

Within equity, I invest mostly in mutual funds and insurance to get balanced returns.

While investments are important, I believe you should also have a kitty to protect yourself during rainy days.

So, I always set aside a contingency fund, which would take care of my expenses for at least one year, in case of events like medical emergency, economic turmoil, etc.

What was your first investment?

My first investment was in the stock market, through the trading desk of one of the companies I had worked for previously.

It was certainly not a bright idea and I went ahead only because someone had suggested it. It wasn’t backed by research.

The euphoria was so high that every time I made little money, I would pump in more funds and be happy with it. And most of these were penny stocks with limited or poor returns.

What has been your best investment decision till date?

My best investment till date has been the house that I bought in New Delhi, sometime in 2004. Its present valuation is almost six to seven times the amount at which I bought it. Although buying a property at that point in time was not financially easy for me, I ensured that my one-year kitty remained untouched.

What are your investments that have backfired? 

I bought penny stocks and learnt the hard way that buying them or quick returns can cause you enough pain.

These are fundamentally weak companies, whose shares are not expected to give you good returns. Even if you buy, you don’t know when to exit; so it is better to stay away.

On the real estate side, I invested in some small properties in wrong locations, which did not fetch good returns.

I made another big mistake. My mother had asked me to buy gold when it had touched ₹3,000 per 10 gm about 20 years ago. I thought it was a useless investment with no returns and didn’t take her suggestion. Obviously, I regret that decision!

What are the asset classes that are doing well currently?

Today, debt funds are doing well and, keeping in mind the expected rate cuts by the RBI, it will give fair returns. Equity, following the recent correction, also looks good. You need to be cautious about real estate investments, unless you are buying for self-occupation. There is a huge supply in the market and demand is depleting. Besides, liquidation of real estate assets is not easy.

When investing with borrowed money in assets such as real estate, what are the common mistakes people make?

One, people often buy property in the wrong location. Two, they get carried away by bargain deals and fail to do their due diligence with regard to legal documents such as occupation certificate and other mandatory approvals.

Three, home buyers don’t pay attention to the area (sq ft) they are paying for and the actual carpet area they will get.

Four, people prefer lucrative schemes, such as those with just 10 per cent down payment and the balance on possession.

However, they must be wary of the builder, who may not have the reputation of delivering projects on time. Five, many people don’t understand the tax benefits of taking a home loan and choosing a co-borrower in the loan structure.

Would you advocate personal loans, credit card loans, etc, given their high interest rates?

It is always a good idea to pay off your credit card bills on time, as they could cost you almost 40-45 per cent more in case of overdue.

Although personal loans are better priced than credit cards, it is always economical to borrow against your insurance policy. You can also opt for loan with your house as the collateral.

This loan against property option is relatively cheaper with interest rates of 13-13.5 per cent.

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