Home Loan EMI vs Mutual Fund SIP Calculator: Target amount Rs 50 lakh, which method can help save 15 years and considerable amount; see calculations
25-year Home Loan EMI vs 10-year Mutual Fund SIP: Because of the high cost of real estate in India, the majority of home buyers depends on home loans. Since such loans are taken for a long duration, the repayment amount is quite high.
25-year Home Loan EMI vs 10-year Mutual Fund SIP: Inflated rents and the rising cost of real estate compel a lot of people to buy homes. They think that if they delay their decision to purchase a home, not only will they pay a large amount in rent, but the cost of the property will also increase. But because of the high cost of real estate, the majority of home buyers depends on home loans. Since home loans are taken for a long duration, the repayment amount is also quite high. There is quite a possibility that on a home loan of 20 years or over, the interest amount one pays is more than the principal. But there are ways that can help reduce the burden of the loan, or can help one avoid taking it altogether. One of them can be to choose an investment and delay home buying for some years. In this write-up, know how the mutual fund SIP investment of 10 years can help one arrange money that can help them avoid taking a Rs 50 lakh loan of 25-year duration.
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Home loan conditions
We are taking the example of a Rs 50 lakh home loan for 25 years at a 9 per cent annual interest rate.
What will be the EMI and repayment amount?
The estimated EMI for the loan will be Rs 41,960. The estimated interest will be Rs 75,87,945, while the estimated repayment amount will be Rs 1,25,87,945.
What will be mutual fund SIP investment conditions?
Here, one needs to make an SIP in a mutual fund(s) of Rs 41,960, which is the amount of the EMI for the Rs 50 lakh loan.
For how long one needs to invest in SIP
The duration of the investment will be 10 years.
What can be the target amount for SIP investment?
We will see how, in 10 years, residential property prices have risen pan-India. Though we can't predict the future price, our estimate will be based on the past price rise. As per ANAROCK Group, the average residential property prices in India's top 7 cities have risen by 4.79 per cent in nearly 10 years (from Rs 5,253/sqft in 2014 to Rs 8,390 in 9M2024). The absolute growth in that period is 59.72 per cent.
What can be the target amount for SIP investment?
So, if we adjust the value of the Rs 50 lakh loan at 4.79 annualised growth in 10 years, the amount will be Rs 83,65,430. That will be our estimated target amount.
Prashant Thakur, Regional Director & Head, Research, ANAROCK Group, "Price growth is as expected a phenomenon in the housing market as it is in the case of stocks and bonds. Nobody invests in anything if there is no potential for price growth in the future. As such, residential price growth cannot be called ‘inflation’. Also, at any given time, housing prices are determined by the cost of land, construction material and labour, and the various regulatory charges levied by the government."
What can Rs 41,960 monthly SIP give in 10 years?
At 12 per cent expected annualised SIP returns, the estimated long-term capital gains will be Rs 43,65,346, and the expected total amount will be Rs 94,00,546.
What will be post tax returns?
After Rs 1,25,000 exemption on long term capital gains and 12.50 per cent tax on the rest of the gains, the estimated interest will be Rs 5,30,043.25.
What will be post tax returns?
Post tax estimated returns in that way will be Rs 88,70,502.75.
How much money can be saved?
Since estimated post tax returns are Rs 88,70,502.75 in the mutual fund SIP investment and the estimated target amount was Rs 83,65,430, one can save Rs 5,05,072.75. Had one gone for the loan, they would have paid over Rs 1.25 crore.
How many years can be saved?
The home loan duration was 25 years, but the SIP investment can save an estimated 15 years.
Disclaimer
Our calculations are projections and are not investment advice. Please do your own due diligence or consult an advisor for financial planning.