Fund Life Goals Before Business

Queries

Punit Mahajan, Noida

I am in my late 20s and want to invest in the real estate sector. What should I watch out for while investing in Real Estate Investment Trust (Reits)?

Reits are investment tools that can help diversify one’s portfolio beyond gold and equity markets. While Reits are capable of generating returns in the range of 7-8 per cent, they are still at a nascent stage in India compared to developed nations. Hence, there are a couple of things that one should consider before investing in Reits.

• It should have a well-diversified portfolio of assets, spread across multiple cities, with consistent cash flows, with diverse tenant profiles. This reduces investor’s risk dependency on a single asset.
• An occupancy rate of 85-90 per cent in Grade-A commercial properties is considered ideal, which can help investors decide the best Reit to invest in.
• Another factor one should consider is the net operating income (NOI). Higher NOI indicates good performance of the underlying portfolio under Reit.

Additionally, it is essential to examine key clauses such as lease expiration, escalation clauses, guidance from company management, and the cost of the purchased unit to comprehend the present and future distribution of its payouts. Do your due diligence before investing.

Shrinivas Rao, FRICS, CEO, Vestian, Real Estate Consultancy

Prashant Gautam, Pune

I am 29 years old and want to start my own venture in a few years. For this, I will require a seed capital of Rs 12-15 lakh. I have managed to save around Rs 7 lakh from my salary over the years. For the remaining amount, I am thinking whether to take a loan or liquidate some of my investments, such as stocks, mutual funds or withdraw from my Employees’ Provident Fund for the balance amount required. If I go for a loan, what are the options that I could consider under the government’s scheme for startups? I don’t want to take a personal loan at high interest.

Any startup takes its own time to generate positive cash flows and this period varies depending on the nature of business, market conditions and your own management of affairs. The best-case scenario is not to take a loan since the interest payment could itself create undesired pressure on you and your business during the initial period when the cash flows are yet to turn positive. This initial period could go up to a few years.

Even if you are able to manage an initial deferment of interest payment for some time, remember that it is just kicking the can down the road as the interest payment would anyway be accumulating and maybe compounding, even if you are not paying it upfront initially. Also, a business venture should not suck in everything that you have since there are other short, medium and long-term requirements of life apart from managing a business, and many of them could be critical life goals, which cannot be deferred.

The good part is that you still have a few years to go before the venture is launched. Make the most of it, save and invest as much as you can, to build up the necessary corpus for your final requirement. you may contact a financial advisor if you need any help in this.

The government has many schemes and benefits available depending on the area you wish to venture into and these keep on changing. The best place to explore for this purpose is www.startupindia.gov.in.

Col. Sanjeev Govila (Retd) Sebi-RIA, CEO, Hum Fauji Initiatives