Should I Continue with My SIPs After Paying the EMI & Why?

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Investing in a Systematic Investment Plan is a long term commitment. Under the SIP investment fund, a fixed amount is debited from the bank account of the investor  every month on a particular date. While investing in SIP people can come across this question that whether it is wise to continue with SIP after paying the EMI. Well, here is the answer to this question.

The investors can continue with the SIP if he/she has the surplus. As the needs and aspirations of people keep on growing it is important to create wealth for longer-term to achieve the financial milestones of life. A systematic investment plan is the safest and the most convenient way to achieve long term financial goals. Before continuing with the Systematic Investment Plan after paying EMI, one should know that how SIP is more beneficial for you than EMI.

Among the major financial milestones of life, buying a house tops the list. As purchasing a house is a long term commitmentthat is made by way of EMI. Paying EMI has never been restraining for most of us and most of the people diligently pay the EMIs on time. But when it comes to investing in Mutual Fund individuals often hesitate to invest a fixed amount in a disciplined way. If we make an elaborate study on house investment and mutual fund investment then we will find out that investing in mutual funds is more beneficial instead of paying EMI. To support this statement, we have further elaborated on how SIP investment is beneficial overpaying EMI.

EMI Vs. SIP

Suppose you plan to buy a house for Rs. 37.5lakh then you will have to make a 20% down payment that comes from your saving. So 20% of 37.5 lakh will be Rs. 7.5 lakh and the rest of the 30 lakhs can be taken as the home loan by the buyer. On 30 lakh of the home loan, the tenure of the loan will be set for 15 years with an interest rate of 10%. So, the total EMI for this loan will result out to be Rs32, 238. Apart from this, the buyer will also have to pay the registration cost of the property which adds a further Rs.7.5 lakh to the cost. Therefore, the total cost of loan payment for 15 years of tenure will be Rs. 58 lakh. Hence the total whopping costs of the house will be Rs73 lakh (down-payment +loan+ registration).

On contrary to this if an individual commits to invest EMI amount to mutual fund through SIP investment then he/she can reap better returns through SIP investment. On the opposite of Rs. 37 lakh of the house assuming a rent of Rs10, 000 per month is a fair estimate. So, an individual can invest around Rs. 22,238 in a good equity instrument as a long term investment. By making an elaborate comparison between the mutual fund and EMI you will come to know the total price of buying a house will cost you Rs73 lakh including the down payment registering cost and total EMI for the loan period.

Whereas, the total cost of investment in a systematic investment plan will charge you Rs55.25lakh. In 15 years of term period the value of an investment will increase up to Rs3.71crore and the investors can reap a return of 18.3%. On the other hand in 15 years of tenure the value of house assuming an appreciation of 4 times to cots will reach up to Rs1.56crore and the individual can get up to 7.9% of return over investment.

As per scenario 2- if the individual makes a total SIP investment of Rs. 40.25 lakh inequity and one-time investment of Rs15lakh in TATA balance then the total investment cost will charge Rs55.25lakh. According to this investment cost, the value of return after 15 years of tenure will cost up to Rs4.28 crore, i.e. the investor will yield a rate of return of 19.6%. On the other hand, if we assume the value appreciation of house by 10 times then after the completion of 15 years of period the value of the house will be Rs3.75crore and the buyer will yield a rate of return of 16.5%.

By making this comparison we can conclude that SIP delivers much higher returns as compared to EMI. Moreover, the investment amount of SIP costs much lower in contrary to the EMI.

So to Conclude with:

If an individual shows the ability and patience to commit a high sum to invest for a long term period, he/she will be able to create a much superior corpus as compared with the EMI. Moreover, the individual can also fulfill their financial goals more efficiently.

Secondly, if you start investing in SIP at an early stage of life then you will not have to get into the hustle-bustle of talking loan to buy a house, instead of buying a house in initial years of your earning you can have high saving to fulfill your future financial goals.