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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.)

What is Financial Freedom?

Writer: Kaustubh Kale
Kaustubh Kale
Aug 15
2 min read

As India celebrates 79 years of freedom, it’s a perfect time to reflect on another kind of liberation - Financial Freedom.


Just as our nation’s journey towards independence was long and purposeful, the path to personal financial independence requires vision, discipline, and persistence. While the terms financial independence and financial freedom are often used interchangeably, they have distinct meanings that are crucial to understand for long-term stability and security.


Here’s my interpretation in financial parlance:

Financial Independence (FI):

FI is when an individual has the education, skill set, and expertise to earn a monthly income that exceeds their living expenses. This ensures they are not financially dependent on parents, spouse, or children, and can live life on their own terms.


Basically, as long as the person is able to actively work, the expenses are well taken care of. A financially independent person can cover current expenses comfortably while also saving for future goals - buying a house or car, going on vacations, funding children’s education and weddings, and building a retirement corpus.


This is why we increasingly see women taking charge of their well-being, decision-making, and financial security. Because they are ‘FI’, they do not have to necessarily be dependent on their parents or spouse. Money does give a lot of power! Importantly, FI is the stepping stone to achieving Financial Freedom.


Financial Freedom (FF):

While incomes can be temporary, expenses are permanent. Here, income refers to active income - money earned by actively working (devoting time, effort and resources). A financially independent person, as a virtue of consistently saving, investing, and staying invested, can build assets making him financially free.


Financial Freedom is when a person has built enough wealth or income-generating assets to cover their expenses for life, without relying on a job or external support. It’s the stage where your investments pay your bills. Such a person is not dependent

on their children to cover after-retirement expenses.


Key examples of such income streams:

Mutual Funds: Systematic Withdrawal Plan (SWP)

Stocks: Dividends

Bank Fixed Deposits: Interest Income

Insurance Pension Plans: Pension Income

Real Estate: Rental Income


Achieving financial freedom allows an individual to break free from the need for a regular paycheck, enabling them to pursue passions, travel, start a business, retire early, or devote time to social causes and legacy-building.


Take Help from Financial Advisors:

Consult a well-educated, full-time advisor who will guide and handhold you. Remember, it takes years of education, experience, expertise and wisdom to write a prescription - so don’t self-medicate when it comes to money.


To Conclude:

As India continues its march towards growth and self-reliance, the concepts of FI and FF have never been more relevant. Both demand careful planning, disciplined saving, and smart investing. The reward? A life of stability, choice, and abundance.


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

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