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Experts suggest investing in SIPs over home loan EMIs. A Rs 60 lakh loan at 9% interest costs Rs 1.30 crore. SIPs could grow to Rs 5 crore in 20 years, saving Rs 2.75 crore
Could investing in a SIP be a better option than taking out a home loan? (News18)
Owning a home is a dream for many, but the financial burden of home loans and EMIs (Equated Monthly Instalments) can be overwhelming. Some experts suggest that instead of paying long-term EMIs, one could invest in a Systematic Investment Plan (SIP) and accumulate enough funds to buy a house. This raises the question: could investing in a SIP be a better option than taking out a home loan?
Understanding Home Loan Costs
Let’s consider a scenario where you take a home loan of Rs 60 lakh for 20 years at an annual interest rate of 9%. The monthly EMI would be Rs 53,984, and the total interest paid over the tenure would amount to Rs 69,56,053. The total cost, including the principal amount of Rs 60 lakh, would be approximately Rs 1.30 crore. So, for a house worth Rs 70 lakh, you end up paying double that amount.
Potential Earnings From SIP Investment
Now, if you invest the same amount of Rs 53,984 every month in a Mutual Fund SIP for 20 years, assuming an annual return of 12%, you would invest Rs 1,29,56,160 over the 20 years. This would grow to a maturity amount of Rs 4,96,57,579, with Rs 3,67,01,419 earned as returns. In simple terms, by the end of 20 years, you’d accumulate nearly Rs 5 crore through SIPs.
Given an inflation rate of 6%, the cost of a house valued at Rs 70 lakh today would rise significantly in 20 years. The price would increase by Rs 1.54 crore, bringing the total value of the house to Rs 2.24 crore in two decades.
Comparing The Two Options: Which Is Better?
By paying EMIs on a home loan, you’d end up paying Rs 69 lakh in interest over the 20 years, for a house that would cost Rs 2.25 crore in the future due to inflation. However, if you invested the same amount through SIPs, your investment could grow to Rs 5 crore, potentially saving you around Rs 2.75 crore even after accounting for the future cost of the house.
