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How To Buy A House In 13 Years Instead Of Paying A Home Loan For 30!

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On average, Indians spend Rs 1.25 to 30 lakhs on EMI. A massive amount of this expense goes into paying interest on purchases, such as personal loans with high-interest rates and long-term home loans. But a simple strategy can free you from this interest and have profitable results. If used smartly, this technique will cut your 30 years of home loan short to just 13 years of strategic planning and investing to reach the same amount of money (i.e., your loan amount). It can save lakhs of rupees on your expensive purchases. It’s called Systematic Investment!

SIP, or Systematic Investment Plan, invests a fixed amount of money in mutual funds at fixed intervals, such as monthly or quarterly. SIP helps you build a corpus over time by benefiting from compounding, i.e., as the funds grow, the investment grows.  You can also opt for a SEP or Systematic Equity Plan. It’s just like SIP, but it invests directly in a company’s equity rather than mutual funds.

If managed smartly, your money can grow multifold. Like last year, PSU funds have shown an average growth of 96% [Source: Moneycontrol]. So, if you had started an SIP of Rs 10,000 in those funds, your Rs.1.2 lakhs would have grown into Rs 2,04,953 within a year.

The idea behind starting a SIP/SEP instead of paying EMI is to use your investment returns to buy your purchase, avoiding the interest cost and saving money in the long run. 

How does starting a SIP/SEP instead of paying home loans work?

To implement this strategy, you need to follow these steps:

  1. Let’s say you are willing to buy a house; for that, you would have been shelling out a loan of Rs 50 lakhs. For this, if you take a loan from the bank on an interest rate of 8.55% percent for the longest possible tenure, say 30 years, your monthly EMI will be Rs 38,623, and by the end of the tenure, you’ll be paying Rs 89 Lakhs as interest, which is almost double the principal amount. 

The same would be Rs. 55,642 if your loan tenure were 12 years, and you would end up paying approximately Rs. 80 lakhs for a loan of Rs. 50 Lakhs.  The shorter the duration, the higher the EMI becomes. It can get difficult to crunch these numbers directly on paper, so you can use home loan calculators, easily available online.

  1. Let’s say you were comfortable with a 30-year home loan for Rs 38,623 as your monthly EMI. As the loan is for 30 years or 360 months, we’ll divide Rs 50 lakh loan amount by 360 months, making Rs 13,889 per month. So, without any added interest, we must save Rs 13,889 monthly for 30 years to make it 50 lakhs. 

To speed up saving money, the money won’t be kept in the savings account but will rather be invested. If this money is invested in an SIP/SEP every month, it grows by 12% yearly, as that’s the average growth rate of mutual funds. Considering that your savings are growing by that number within 13 years, you will invest a total of Rs 21 lakhs, which will grow to Rs 52 lakhs by the end of the 13th year. 

  1. Choose an investment method that matches your risk profile, investment horizon, and financial goals. The wiser your choice is, the higher your returns. As we saw earlier, you can double your money with the right strategy. But we might miss even more calculations, like inflation and hikes in property prices. 

So you might need to tweak those numbers slightly to increase the savings to Rs 17,000, and you will get a return of Rs 63 lakhs. Or if the duration is increased to 15 years for Rs 13,889, the returns will be Rs 70 lakhs.

Hence, it is always advisable to consult an investment advisor for such huge financial decisions. Still, this strategy is a no-brainer for comparatively smaller purchases like a car or an expensive smartphone. You can save a huge amount of money with the right playing in a really short duration.

What are the benefits of starting a SIP/SEP instead of paying home loan EMIs?

Starting a SIP/SEP instead of paying EMI offers several advantages, such as:

  • It helps you invest in a disciplined and consistent manner without worrying about market fluctuations or timing the market.
  • You save on interest costs and buy your desired product at a lower price than the loan amount.
  • It helps you achieve your financial goals faster by leveraging the power of compounding on your investments.
  • Investing in different SIP schemes helps diversify your portfolio and reduce risk exposure.
  • It helps you enjoy tax benefits on your SIP/SEP if you have invested in a tax-saving fund.

What are the challenges of starting an SIP/SEP instead of paying EMI?

Starting a SIP/SEP instead of paying EMI also comes with some challenges, such as:

  • It requires a stable and regular income source to easily pay your SIP/SEP.
  • As the investments are in mutual funds, they are subject to market risks and may not generate consistent returns in the long term.
  • You must choose a reliable and high-performing mutual fund scheme that can deliver the expected returns and match your risk appetite.
  • You must monitor the performance of your mutual fund scheme and the product’s price and make adjustments accordingly.

Conclusion

Starting a SIP/SEP instead of paying EMI is an intelligent way to finance your phone purchase without compromising your savings and investments. It can help you save on interest, make your purchases at a lower price, and grow your wealth over time. However, it also requires careful planning, research, and monitoring. It can be difficult for most people, so one must consider taking the help of a financial advisor. They will consider your income, expenses, risk tolerance, and financial objectives and draw the right road map. Happy investing!

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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.

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