Why is SIP Called the Good EMI?
While we know India as a nation of the savers, millennials today tend to prefer to live in the present and enjoy the time. Be it buying the latest gadgets, or planning an exotic vacation, the youth of today may not shy away from taking debt to fulfil such aspirations. With the loans to service over the future, it always seems a convenient proposition. However, servicing loan instalments, or EMIs (Equated Monthly Instalments) as they are generally referred to, calls for commitment and financial discipline, for any missed EMI may restrict access to further credit by damaging the credit score.
Servicing an EMI for an asset, which reduces its value over time, e.g., car etc. may not be a good idea. Such EMIs also intrude into your budgets in the form of an additional interest burden. Instead, why not service an EMI towards something that may grow over time. Saving regularly and investing such savings into better investment products may help you contribute towards your financial prosperity. Mutual funds may be one such solution, wherein the investors may have a wide range of mutual fund schemes to choose from, best suits your financial goals and risk profile. At the same time, one may also register a Systematic Investment Plan (SIP) to invest in a mutual fund scheme of your choice periodically.
SIP deducts the specified amount automatically from your bank account periodically and invests the same irrespective of the market direction. As such, when the markets are trending lower, one gets more units. On the other hand, when the markets are rising, one may get lower units, but benefits from the increase in portfolio valuation.
Making consistent SIP investments also helps you move steadily towards your financial goals and accumulate a healthy corpus over a period. So, just in case if you are planning to buy an asset, you may aim for a bigger goal with your savings. For example, if you are planning to buy a house worth Rs. 75 lakhs, you may be eligible for a home loan up to Rs. 60 lakhs. With an interest rate of 10.5% per annum and a loan tenor of 25 years, the EMI will be approx. Rs. 50,000. As such, one would have paid Rs. 1.51 crores over 25 years, including 91 lakhs interest amount.
On the other hand, you may choose to get a similar house on rent, which may be available at Rs. 15,000 to Rs. 20,000 per month assuming a rental yield of around 2.5%. You may start a SIP EMI for the balance amount of Rs. 30,000 per month in an equity fund for 25 years and with a conservative assumption of 12% returns per annum, you may get a portfolio worth Rs. 4.20 crores by the end of the investment period. This is indeed the power of compounding, and with the fuel of ‘time’ propelling your financial journey, you may also aim for more significant financial goals over a long period.
So, now that you have known the power of SIP, several questions may be haunting your mind now, like which is a good SIP to invest, which is the best SIP, etc. However, you must note that SIP is not an investment product by itself, but just a facility to invest in mutual funds, wherein one may invest in a range of mutual fund schemes. While an EMI may be eating into your share of savings and keeping you away from your financial goals, a good EMI through SIP may be your vehicle to achieve your financial goals steadily. Choose the good EMI route to reach your financial goals.