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By:

C.S. Krishnamurthy

21 June 2025 at 7:45:51 pm

Let Your SIP Fight Your EMI

When Ramesh bought his first home, he was delighted. The keys were finally in his hand, but another number immediately occupied his mind: the monthly EMI. “Now that I have some money left after paying my EMI, what should I do with it?” he asked his financial adviser. “Or should I start investing? And if I invest, won’t I be carrying a loan unnecessarily?” A home loan can run for 15, 20 or even 25 years, while the desire to become debt-free keeps growing. But does a borrower necessarily have...

Let Your SIP Fight Your EMI

When Ramesh bought his first home, he was delighted. The keys were finally in his hand, but another number immediately occupied his mind: the monthly EMI. “Now that I have some money left after paying my EMI, what should I do with it?” he asked his financial adviser. “Or should I start investing? And if I invest, won’t I be carrying a loan unnecessarily?” A home loan can run for 15, 20 or even 25 years, while the desire to become debt-free keeps growing. But does a borrower necessarily have to choose between repaying the loan faster and investing for the future? What if both could be pursued simultaneously? Could a Systematic Investment Plan (SIP) create a corpus that eventually helps reduce or even close the home loan? The idea merits consideration. A SIP is not a magic formula for becoming debt-free, but it can create a second financial track alongside the regular EMI. Two tracks, one objective Consider an illustration. Suppose a borrower takes a home loan of ₹50 lakh at an assumed interest rate of 8.5 pc for 20 years. The EMI would be around ₹43,400.
Instead of putting every available rupee into the loan, the borrower could consider investing ₹10,000 a month through a SIP, provided the household cash flow permits it. At an assumed annualised return of 12 pc, a ₹10,000 monthly SIP could grow to roughly ₹8.24 lakh in five years, ₹23.23 lakh in 10 years, ₹32.22 lakh in 12 years and ₹50.45 lakh in 15 years. While these are not guaranteed returns, the possibility of higher returns is also not ruled out. Meanwhile, the outstanding home loan would gradually decline through EMIs. Over eight to 10 years, the SIP corpus could become substantial enough to give the borrower an additional financial option. The important point is not to decide today exactly when the loan will be closed, but to review the position when the time comes. Why not simply prepay? Prepaying the home loan provides a relatively certain benefit because every rupee of principal repaid reduces future interest outgo, subject to the loan terms and applicable rules. The SIP serves a different purpose. It creates a financial asset and, over the long term, gives the investor an opportunity to participate in the growth potential of financial markets. The decision point comes later The strategy need not have a fixed finish line. After eight to 10 years, the borrower can review the situation rather than mechanically redeeming the SIP. What is the outstanding loan, the investment value and its performance? What are the prevailing market conditions? Is part-prepayment more appropriate than full repayment? These questions can guide the decision. If the corpus has grown sufficiently and circumstances are favourable, the borrower may consider using part of it to reduce the outstanding loan or, if appropriate, redeeming enough to close the loan completely. If the investment is better retained for the long term, there is no compulsion to exit merely because 10 years have passed. The strength of the strategy lies in this flexibility. Think beyond the loan A long-term SIP is not merely a future home-loan repayment fund. It can become a wealth-creation vehicle in its own right. Compounding rewards patience. A disciplined monthly investment held for the long term can help build a corpus for retirement, children’s education, other life goals or financial independence. Thus, while the home loan moves towards closure through the EMI, the investment has the opportunity to grow alongside it. Once the loan is eventually closed, the EMI disappears. Instead of allowing that money to quietly disappear into lifestyle expenses, the borrower can redirect some or all of the former EMI towards investments. A sensible balance This approach is not a universal prescription. Some borrowers may prefer aggressive loan prepayment, while others may find the combination of EMI and SIP more suitable. The SIP amount should also be comfortable. If ₹10,000 strains the monthly budget, start with less. The strategy should strengthen financial security, not create financial pressure. Adequate emergency savings and appropriate insurance should also form part of the overall financial plan. The larger lesson is simple: a home loan need not automatically put wealth creation on hold. With disciplined cash-flow management, a long-term investment approach and periodic reviews, the EMI can continue paying for today’s home while the SIP works towards tomorrow’s financial freedom. In the end, the question need not be, “Loan or investment?” It can be: “How can I use both wisely?” Disclaimer: “Mutual funds are subject to market risks. Read all scheme-related documents carefully.” (The writer is a retired banker and author. Views personal.)

Family Finance Diary

Writer: Kaustubh Kale
Kaustubh Kale
May 9
2 min read

Most people work hard to create wealth. They invest in bank deposits, mutual funds, stocks, insurance policies, real estate, gold, bonds and other assets. But one important question is often ignored: does your family know about all this?


This question has become even more important today. Recently, our Prime Minister Narendra Modi highlighted that Indian banks are holding around Rs. 78,000 crore of unclaimed deposits, insurance companies have nearly Rs. 14,000 crore lying unclaimed, mutual fund companies have around Rs. 3,000 crore, and dividends worth around Rs. 9,000 crore are also unclaimed. The government’s “Your Money, Your Right” initiative was launched to help citizens trace and claim such forgotten financial assets.


These numbers tell us something very important. Many families do not lose money because of bad investments. They lose access to money because investments are scattered, undocumented or unknown to the next generation.


Easy to Locate

Personal finance is not only about creating wealth. It is also about ensuring that your family can locate, understand and access that wealth when required.


Every family should maintain one proper financial book. Not just a password-protected file on a laptop. Not just a folder in email. Not just a WhatsApp message. Technology can fail. Phones can get locked. Passwords can be forgotten. Emails can become difficult to search. Excel sheets, links and soft copies can have multiple versions. During difficult times, the family should not be confused about which file is the latest and where to find what.


Hardcopy Book

A simple hardcopy book with proper pages, sections and annexures can become extremely useful. This book should give a bird’s eye view of your complete financial life.


It should mention your bank accounts, fixed deposits, mutual funds, demat accounts, insurance policies, loans, property details, gold holdings, important documents, nominations and advisor contacts. Wherever necessary, annexures can be attached for policy copies, account statements, property papers and other important records.


The idea is to create a clear roadmap for the family. They should know what exists, where it exists and whom to contact.


Liabilities, Nominations

Your family should also know about your liabilities. Home loans, business loans, credit card dues, personal loans or guarantees given should be clearly recorded. Wealth planning is incomplete without liability awareness.


Nominations must also be checked and updated across all investments. Many people assume that old nominations are still correct, but life changes. 


NRI Families

This becomes even more important when children live abroad. Many families today have NRI children who may not know which bank their parents use, where the property documents are kept, who the financial advisor is, or whether any old insurance policy exists.


In such situations, one well-maintained financial book can save the family from confusion, delays and unnecessary stress.


Regular Review

Finally, review this financial book once or twice a year. Updating it is as important as creating it.


A good financial plan should not only grow your money. It should also make sure that your family can find it, claim it and use it. Wealth should not become a mystery after you. It should become security, clarity and peace of mind for the people who matter most.


(The author is Chartered Accountant and CFA (USA). Financial advisor. Vies personal. He could be reached on 9833133605)


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