Taking a home loan is a major financial decision, and to repay it one has to pay heavy EMIs every month. Usually, people try to end the home loan quickly so that not much money has to be paid on interest. In such a situation, lightening the burden of home loan interest by investing in SIP often seems better to people.
Along with the decision to reduce the burden of home loan from SIP, people should think about both profit and risk. If this method is adopted wisely, it can strengthen your financial situation. Let us know what this strategy is, how it works, and what risk can be there.
What is EMI + SIP Strategy?
EMI + SIP strategy means that apart from your monthly EMI, you should invest a fixed amount in mutual funds every month through SIP. The aim of this is that in the long run, this SIP should prepare a big fund, so that you can reduce your home loan burden.
Suppose you have taken a home loan of 80 lakh rupees, if you pay it in 15 years, then your EMI will be about 78,500 rupees. But if you take the same loan for 20 years, then EMI decreases to Rs 69,000. The difference between them is about 9,500 rupees which you invest in SIP every month.
How much can be benefited in 20 years?
Suppose you invested 9,500 rupees every month in a good index fund for 20 years. If you get an annual return of 12-13%, then in 20 years this SIP can make a fund of about ₹ 95 lakh to ₹ 1 crore. With this money, you can repay the remaining amount of your loan ahead of time. Not only this, even after repaying the loan, you can have a lot of savings.
Is this method right for everyone?
The benefits of this strategy will get only when the market performs well and your investment remains stable. But the market is full of ups and downs and it is not necessary that returns are always high in future. If the return from your mutual funds is less than the interest rate of your loan, then this strategy can cause damage.
Also, this method is good for those who have income stable and who can invest in SIP every month. If you get caught in a situation like unemployment or reduction in income, then not only SIP can stop but it can also be difficult to repay EMI.