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Combination of Home loan EMI and Mutual Fund SIP can save you lot of money..........
What if your Home loan tenure is reduced without increasing EMI and even if the interest rate remains the same? Sounds interesting? Read it.
In year 2010, I bought a flat in Ahmedabad for which I took the home loan of Rs 48 Lacs from one bank. At that time the interest rates were around 10.5%. So I decided to take the loan for the tenure of maximum term i.e. 20 years as I could pay the EMI of र 47922/- easily.
The bank RM came to my office for filling up the forms. While filling the forms he asked me about the tenure I would like to go for. I told him that maximum tenure i.e. 20 years. Bank’s RM told me that sir maximum limit is not 20 years it is 25 years. According to my calculation I was ready for paying of र 47992/, an EMI amount for 20 years of tenure considering 10.5% interest and Loan of Rs 48 Lacs.
So if I chose to go for 25 year, EMI would be lesser. I tried to do the exact calculation and ended up with some unique Idea which I am sharing through this article. The EMI for the 25 years tenure was worked out to be र 45302/, resulting into the saving of Rs 2600/ per month saving into the EMI. So I decided to go for the longer tenure i.e. 25 years.
Initially, financially and mentally, I was ready to pay र 47992/ of EMI per month. So I decided to start an SIP of this Rs 2600/- and to use the amount accumulated through this particular SIP to repay the Loan into the future. I did some calculation in excel to check with the help of this combination of reduced EMI and SIP, how would it affect my loan repayment schedule.
My older SIPs were giving me some 18% kind of a CAGR but while doing the calculation I assumed that my future SIP would generate 15% CAGR only. I found out that with this combination and assumed return of 15% CAGR from SIP, I can repay the loan in just 18 years and 2 months.
Sounds interesting?
Let me explain,
Case 1: 20 years loan – Outflow (EMI – र 47992)
Case 2: 25 years loan + SIP of saving into the EMI (EMI र 45302 + SIP र 2600 = Total र 47992)
In both the above cases my monthly outflow is same. The only difference is the methodology. In first case I am only paying EMI in second case by increasing tenure I am making saving into the EMI and doing the SIP of the saved amount and thus making my monthly outflow same as that of case 1.
After 18 years and 2 month, the value of my SIP of Rs 2600/- per month assuming the 15% CAGR* would be approximately Rs 10.54 Lacs, which I can use to fully repay the Home Loan outstanding. In other words, the outstanding loan principle amount would equal to the Fund Value of SIP after 18 years and 2 months.
In the whole process I would pay 22 EMIs less compared to Case one, making an absolute saving into the EMI worth Rs 10.54 Lacs. Though Bank charged me 10.5% interest but for me the effective interest worked out to be only 10.03%.
If you are planning to buy the Home loan and if you have decided to take the loan for shorter period then you can use the above idea to save some bucks. So if you have decided to go for 15 years of tenure and your bank is ready to provide you maximum tenure of 25 years, then go for the higher tenure and utilize the monthly saving to do SIP into some good diversified equity mutual fund scheme/s.
If you have already taken the loan you can still utilize the above idea by asking bank to increase the tenure or you can also transfer you loan from one bank to another and while moving to the another bank take the maximum tenure. I transferred the above said loan to a nationalized bank at the time when 22 years of tenure was pending in earlier bank. I opted for 30 years of tenure in my second bank where I transferred my loan, therefore, further reducing my EMI. I added that saving also into the SIP and that would again save few more EMIs.
Conclusion
Thus, by selecting the maximum tenure of your Home Loan EMI and doing the SIP for the saved amount can help you repay your loan earlier. The return assumed

One should plan and start a SIP as early as possible..so far a SIP of Rs 2500/-Per Month in a particular fund has become more than 1 crore in last 20 yrs...

Classic example of How investment is better than consumption!
How Many People are riding ROYAL ENFIELD BIKE ? or wish to ride i t ?
Look at the company's growth
Eicher Motors (Makers of Royal Enfield).
Share Price on September 2001 = Rs. 17.50
Price of Royal Enfield bike in 2001 was Rs.55000/-
If any one would have bought the shares of Eicher Motors instead of a bike than he would have got 3143 shares ((Rs. 55000/ Rs 17.50 (share Price) = 3143 Shares))
Eicher Motor's Share Price as on 4th Aug 2015 is Rs. 20,158, Total Value as 3143 x 20,158= 6.33 crore
55000/- is worth 6.33Crore in 13 Years.
Now he could hv bought a Rolls Royce.
Today's price of 1 share is 21042/-

SEE HOW INVESTMENT OF Rs 10,000/- in 1993 become 2,25,00000/- (2 Cr.25 lakhs) today..
Motherson Sumi announced : 1:2 Bonus on 10th June'15
Wealth Creation of Motherson Sumi :-
Motherson came out with IPO at Rs 25 per share in April-1993
Only Rs 10,000/- of investment on 400 shares.
The Company's Bonus History and Multiplication of Shares as follows :-
1997-98: Bonus 1:2 - 400 shares became 600 shares
2000-01: Bonus 1:2 - 600 shares became 900 shares
2002-03: Split into Rs.5 paid up - 900 shares became 1800 shares
2003-04: Split into Rs.1 paid up - 1800 shares became 9000 shares
2004-05: Bonus 1:2 - 9000 shares became 13500 shares
2007-08: Bonus 1:2 - 13500 shares became 20250 shares
2012-13: Bonus 1:2 - 20250 shares became 30375 shares
2013-14: Bonus 1:2 - 30375 shares became 45563 shares
So, 400 shares became 45563 shares.
Current market value of 45,563 shares @ Rs 489 today
is Rs 2,22,76,884 (more than Rs 2 crore 22 lakhs 76 thousand)
Thus, 2268 times increase in Investment Value in 22 years!!!
👍Patience is bitter, but its fruit is sweet.😊✌
Such return on long term investment may be derived from MF investment...