SIP: How correct is the SIP option for repaying home loan? Know whether it will be beneficial or will it increase your trouble..

Taking a home loan is a big financial decision, and to repay it, a huge EMI has to be paid every month. Usually, people try to finish the home loan quickly so that they do not have to pay much money in interest. In such a situation, reducing the burden of home loan interest by investing in an SIP often seems to be a better plan for people.

Along with the decision to reduce the burden of home loans through SIP, people should think about both the benefits and risks. If this method is adopted wisely, it can strengthen your financial position. Let us know what this strategy is, how it works, and what risks are associated with it.

What is the EMI + SIP strategy?

EMI + SIP strategy means that in addition to your monthly EMI, you invest a fixed amount every month in mutual funds through SIP. Its purpose is that in the long run, this SIP creates a large fund, so that you can reduce the burden of your home loan.

Suppose you have taken a home loan of Rs 80 lakh. If you repay it in 15 years, then your EMI will be around Rs 78,500. But if you take the same loan for 20 years, then the EMI decreases to Rs 69,000. The difference between them is about Rs 9,500, which you invest in SIP every month.

How much profit will there be in 20 years?

Suppose you invested Rs 9,500 every month in a good index fund for 20 years. If you get an annual return of 12-13% in it, then in 20 years, this SIP can create a fund of about ₹ 95 lakh to ₹ 1 crore. With this money, you can repay the remaining amount of your loan before the time. Not only this, you can have a good amount of savings even after repaying the loan.

Is this method right for everyone?

The benefits of this strategy will be seen only when the market performs well and your investment remains stable. But the market is full of ups and downs, and it is not necessary that the returns will always be high in the future. If the returns from your mutual fund are less than the interest rate of your loan, then this strategy can cause harm.

Also, this method is suitable only for those people whose income is stable and who can invest in SIP every month. If you get caught in a situation like unemployment or a reduction in income, then not only can SIP stop but it can also become difficult to pay EMI.

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