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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.)

Four Methods to Choose Investment

Writer: Kaustubh Kale
Kaustubh Kale
May 30
3 min read

One of the most common questions investors ask is: “Which investment should I choose?” The real answer is that no investment is good or bad in isolation.


A simple way to judge any investment is the RRLT framework - Risk, Return, Liquidity and Time Period. Before investing in any product, all four factors should be seen together.


1. Return

Return is the reward you expect from the investment. It may come in the form of interest, dividend, capital appreciation or regular income. Naturally, every investor wants good returns.


However, return should be understood properly. It is important to look at the real intrinsic / internal rate of return (IRR) of every investment, especially when cash flows happen at different points of time. A product may sound attractive on the surface, but the actual return may be very different when calculated correctly.


2. Risk

Risk is the possibility of losing money whether partially, fully, temporarily or permanently. In some investments, the risk is very low. In others, the value may fluctuate significantly in the short term.


Direct stocks, equity mutual funds, gold and real estate can create wealth over time, but they need patience and the ability to tolerate ups and downs. On the other hand, fixed income products may offer stability, but they may not beat inflation over the long term.


3. Liquidity

Liquidity means how easily you can convert your investment back into money when required. A savings account is highly liquid. Fixed deposits, mutual funds and stocks are reasonably liquid. Real estate may take time to sell.


Liquidity matters because emergencies do not come with advance notice. Before chasing returns, every investor must ensure that enough money is available in liquid instruments for short-term needs and emergencies.


4. Time Period

Time Period is the most important filter. The investment product should be selected based on when you need the money.


If the money is needed within a few months or one to two years, safety and liquidity matter more than high returns. If the goal is ten, fifteen or twenty years away, growth-oriented assets like equity mutual funds, direct stocks and gold-related instruments can play a larger role.


The longer the time horizon, the better your ability to handle short-term volatility.


Goal-Based Planning

This is where proper financial planning becomes useful. Make a table of your financial goals - home purchase, car, vacation, child education, child’s marriage and retirement.


Write the amount required, adjust it for inflation and mention the time left for each goal. Once this is clear, choosing the right investment becomes easier.


Investment Avenues

Broadly, investment avenues can be divided into two categories - those that help beat inflation and those that mainly provide stability.


Equities, equity mutual funds, gold and real estate help in long-term wealth creation by beating inflation. Your long-term financial goals should ideally be invested in this bucket - the one that helps your money grow faster than inflation.


For your short-term goals, rely more on bank fixed deposits, recurring deposits, and debt mutual funds. Here, safety and availability of money are more important than high returns.


A good investment is not the one that sounds exciting. A good investment is the one that fits your goal.


So before investing anywhere, remember RRLT - Risk, Return, Liquidity and Time Period. When these four are aligned with your financial goal, investment decisions become much clearer.


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

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