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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.)

SIP vs STP vs SWP

Writer: Kaustubh Kale
Kaustubh Kale
May 23
2 min read

In mutual funds, investors often hear three important terms - SIP, STP and SWP. These may sound technical, but they are actually simple and powerful facilities provided by mutual funds. They help investors invest, transfer and withdraw money in a disciplined and automated manner.


Systematic Investment Plan

This is the most commonly known concept. In an SIP, a fixed amount is automatically debited from your bank account on a fixed date and invested into selected mutual fund schemes.


For example, if a 30-year-old investor starts investing INR 10,000 per month for retirement and continues till the age of 55, the investment period is 25 years. Assuming a long-term return of around 12% per annum, this monthly investment can grow to approximately INR 1.70 crores.


Please note, INR 10,000 is only a small amount used for illustration. Your SIP amount should be sufficient for your goals. Ideally, investors should try to invest at least 30% of their in-hand monthly income.


The biggest benefit of SIP is discipline. You do not have to remember to invest every month. The process is automated. SIP also helps you invest through market ups and downs, reducing the stress of timing the market. That is why SIP is also popularly called Sapna-In-Progress.


Systematic Transfer Plan

In SIP, money moves from your bank account to a mutual fund. In STP, money moves from one mutual fund scheme to another.


This is especially useful when you have a lumpsum amount but do not want to invest it into equity funds in one shot. For example, an investor has INR 20 lakhs to invest for the long term. He may worry about market volatility if the entire amount is invested at one go.


In such a case, the money can first be parked in a debt mutual fund, and then gradually transferred to an equity mutual fund through STP. For example, INR 40,000 can be transferred every week over around 50 weeks. STP is flexible in terms of duration, frequency, amount and choice of schemes.


STP gives comfort, automation and gradual participation in equity markets.


Systematic Withdrawal Plan

This is the exact reverse of SIP. In SIP, money goes from your bank account to a mutual fund. In SWP, money comes from your mutual fund to your bank account at regular intervals.


SWP can be very useful after retirement. Suppose an investor has built a corpus of around INR 10 crores by the age of 55. He can set up an SWP to receive, say, INR 5 lakhs per month for his regular expenses.


If the corpus is invested wisely with proper asset allocation, the investor can receive regular income and still allow the balance corpus to grow over time. To understand the power of this, consider an actual scheme’s past performance. A corpus of INR 10 crores would have grown to around INR 30 crores over 15 years, even after the investor withdrew INR 5 lakhs every month.


In simple words, SIP helps you invest regularly, STP helps you transfer wisely, and SWP helps you withdraw systematically.


Used properly, these three tools can make wealth creation and retirement planning more disciplined, automated and peaceful.


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

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