Real estate remains the hottest savings bets for individuals with most Indians preferring to park their surplus income in these assets despite a robust turnaround in equity markets with the BSE-Sensex looking to good to scale back up to 20,000.
Rakesh Singhal, 36, a multinational bank employee spends about Rs.1.04 lakh or 40% of his monthly income of Rs. 2.6 lakh in paying off a home loan taken three years ago. It is an investment decision he is keen on repeating if his income rises appropriately, given that the property's value has already risen by 35%.
Singhal also sets aside a tiny fraction of his disposable income for two life insurance policies and a public provident fund (PPF) account.
Financial planners said the mindset that real estate is risk free and fetches the healthiest returns has goaded people into investing more in properties rather than other assets such as equities and bank deposits (see graphic).
Experts, however, warned the quantum of returns should not be sole determinant and diversifying the savings portfolio was important.
"If you need instant cash on a short notice, you may not get it and often you need to wait for a couple of months or even more to get your property sold off, especially with the slowdown in the economy," said Surya Bhatia, principal consultant, Asset Manager.
Maneesh Kumar, director, Burgeon Wealth Advisors echoed similar views.
"You often don't find a well thought out and well planned investment pattern, people generally tend to direct their funds into a particular asset class which is highly risky," Kumar said.
"The ground rule is that one should invest one third of his income while his expense should never exceed one third. One third should be spent on repaying debt," said Ranjeet Mudholkar, CEO, Financial Planning Standard Board of India.
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