Topic 3 of 5~5 min read

SIP for House Purchase

Definition

Using SIP to build a house down payment corpus. Most home loans require 20-30% down payment. SIP can systematically build this down payment over 5-10 years while potentially earning better returns than traditional savings.

In Simple Words

A house costing ₹80 Lakhs today requires ₹16-24 Lakhs as down payment. Instead of struggling to arrange this lump sum, you can start a SIP 5-7 years before your planned purchase. Since the time horizon is medium-term, use a balanced or aggressive hybrid fund rather than pure equity.

Real-Life Scenario

Vikram plans to buy a house in 7 years. Expected house cost then: ₹1.2 Crore. Down payment needed (20%): ₹24 Lakhs Registration & stamp duty (7%): ₹8.4 Lakhs Total needed: ₹32.4 Lakhs SIP in hybrid fund at 10% return for 7 years: Required monthly SIP: ₹26,800 Vikram starts with ₹20,000/month with 10% annual step-up → achieves target comfortably.

Key Points to Remember

Plan for 20-30% down payment plus registration costs

Medium-term goal (5-10 years) — use balanced/hybrid funds

Shift to debt funds 1-2 years before purchase date

Real estate prices inflate at 5-8% in most cities

Do not delay house purchase indefinitely — prices also increase

Consider both apartment and plot investment options

SIP is better than saving in bank FD for this goal

Account for interior, furnishing, and moving costs too

Frequently Asked Questions

Test Your Knowledge

1 questions to check your understanding

Question 1 of 1Score: 0/0

What type of fund is most suitable for a 5-year house down payment SIP?

Summary Notes

Account for down payment + registration + furnishing costs

Use balanced funds for 5-7 year horizon

Shift to debt 1-2 years before purchase

Step-up SIP makes the target more achievable