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...

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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.)

New Financial Year - Five Tips

Kaustubh Kale

Apr 4

2 min read

As the new financial year 2026-2027 begins, it is the perfect time to reassess your financial goals and make smart decisions to build a strong foundation for the year ahead. The following five strategies can help you take better control of your financial future.

Whenever I talk about investments below, I mean a combination of mutual funds, direct stocks, and gold. These are essential for beating inflation and achieving your long-term goals, especially those beyond three years. For short-term goals, you can stick to bank fixed deposits and recurring deposits.

1. Increase your SIPs

Systematic Investment Plans (SIPs) are a disciplined way to invest. If you have not increased your SIP contributions in the last 12 months, or after a recent salary increase, promotion, or job change, now is a good time to review and increase them. Your SIPs should ideally account for at least 30% of your monthly in-hand income. Consistent investment habits help you manage current expenses while building long-term wealth. It is important that your investments not only beat inflation, but also help maintain and improve your standard of living over time.

2. Make lumpsum investments

If you have excess funds that you will not need for the next three years, consider making lumpsum investments. Idle money gradually loses value because of inflation, so it is important to put surplus funds to work wisely. Beyond SIPs, keep making lumpsum investments regularly whenever surplus money is available.

3. Health insurance

Health insurance is a critical component of any sound financial plan. To protect your savings and long-term financial goals, it is essential to buy personal, comprehensive health insurance that offers sufficient coverage and the necessary features. Do not rely only on your employer’s health insurance plan.

4. Term life insurance

Term life insurance is an essential product to provide financial security for your loved ones. If you do not already have a term plan, make it a priority to get one. If you do have one, assess whether your coverage is sufficient in relation to your income and financial goals, and increase it if needed. Term insurance is a cost-effective way to protect your family in case of an untimely death and ensure their financial stability.

5. Engage a financial advisor for comprehensive planning

If you have not yet worked with a financial advisor, the new financial year is a good time to start. A professional advisor can help you create a personalised plan by assessing your financial goals and covering various investments. A well-educated, full-time financial professional brings the necessary education, wisdom, experience, and expertise to help you achieve your financial goals.

By implementing these strategies at the beginning of the financial year, you can put yourself in a stronger position for financial success and long-term security.

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

Let Your SIP Fight Your EMI

New Financial Year - Five Tips

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