Invest in short-term debt funds for 2-3 years to accumulate down payment for first house

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Debt funds are suitable if you want to build a corpus for down payment. Photo: iStock

Debt funds are suitable if you want to build a corpus for down payment. Photo: iStock

I want to save to accumulate down payment for a house that I plan to buy in 2-3 years. I used to invest in FDs, but want to move to mutual funds. Which type of funds would be suitable?

—Harsh Saxena

The investment horizon is 2-3 years and the accumulated corpus is to be used as down payment for investing in property. If this is your first property and is meant for your own residential purpose, you can invest in short-term debt funds. Ideally, target three years as the debt investment if held for more than three years becomes long term and eligible for benefit of indexation, leading to lower tax incidence.

However, if this is not your first property and/or is not meant for your own residential purposes, resulting in an investment asset class, you can even consider investing in equity or equity-oriented mutual funds, the rationale being that the investments could be held for a longer duration in case there is underperformance in equity.

Also Read: Renting vs buying a house: Figures don’t lie

My sister and I send ₹15,000 each to my mother every month for her daily expenses. She lives in her own house in another city. Though we take care of her other expenses like doctors’ fees and household staff salary separately, should we save to create a separate emergency corpus for her as well?


It is indeed recommended that you create a separate corpus for your mother to take care of any contingencies as well as otherwise. While what you are doing currently is the same, by contributing for her medical expenses as and when she needs the funds along with providing for other expenses, creating a separate corpus will add more discipline to your own finances where you can save on a regular basis. And part of the same corpus can be utilised as the need arises. This corpus can be invested in FD or an ultra short-term debt fund and you can even consider starting SIP in the said investments.

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Surya Bhatia is managing partner of Asset Managers

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