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  • Writer's pictureSahastha

EMI vs SIP Plan – Make a Right Choice

Updated: Oct 4, 2023

In today’s world, taking a personal loan, home loan, or car loan has become very simple and very quick. Well, this could be the reason, a majority of today’s generation is paying more EMI’s as compared to their monthly savings, however, they failed to understand how heavily it is burdening their pockets.

Your every new spending will lead to a mental calculation to check whether you can manage the burden with your existing EMI outgo.

On the other hand, a Systematic investment plan is quite a popular investment option because of its consistent performance and ease of monthly contributions with the affordable amount for building corpus amount based on calculation. It will help you to accumulate corpus in advance to achieve your financial goals over a period of time.

Which one would you choose?

Servicing an EMI for an asset, which reduces its value over time may not be a good idea. Instead, why not service an EMI towards something that may grow over time. Saving regularly and investing such savings into better investment products may help you contribute towards your financial prosperity. Mutual funds may be one such solution, wherein the investors may have a wide range of plans to choose from, best suits your financial goals and risk profile.

On the other hand, when you create a corpus through SIP’s you gradually create an asset for yourself that will help you achieve your financial goals in life with the help of the power of compounding. It has the potential to beat inflation and create wealth in long run. This is the way, invest in a step by step to get closure to your life goals in a systematic and disciplined manner.

Choose lower sip today than higher EMI tomorrow:

Let’s suppose, next 5 years you plan to buy a new car costing ₹ 8,00,000 approx. One option you have is to only plan it by taking loan or swiping your credit card and converting the repayment into 60 monthly installments. With this, you will end up paying almost ₹ 10.67 lakhs (₹ 17.8 EMI) at an assumed interest rate of 12%. But if you plan it and start saving for it in advance, let’s say 5 years before you decide to invest, you only need a SIP of ₹ 10,111 per month to accumulate a corpus of Rs 800,000 in 5 years at an assumed and expected rate of return of 11%.

The above example clearly, explains that if you preplan your goal, you can actually save a good amount. Also, it gives you and your family, A sense of security.

Be smart to make the right decision:

Even if you get a bit late on buying the things you need, it is always better to avoid the debt trap which slowly pulls you to a stage when you end up taking more loans to pay your previous one. A systematic investment plan provides you a disciplined approach to investment and that too at a very nominal amount to start with. All you need to do is quantify the amount for whatever you are planning to buy, based on which you can plan your sip amount.

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