Home Loan+SIP: How SIP of 10% of EMI amount can make your home loan interest-free
Home Loan+SIP Calculator: Home loans are high in amount and have a long duration. So, the interest amount is most likely to be larger than the principal amount during that duration. But if you simultaneously make an investment in a mutual fund SIP where you get good growth, you may gather a corpus that can match your interest amount.
Home Loan+SIP Calculator: Buying a home in cash is nearly impossible these days. The reason is that real estate properties are expensive, and buyers don't have the purchasing power to buy a home in one go. So they take a home loan. Such loans have long durations and may come for 15–25 years. So, when it is taken for a long duration, the interest paid is most likely to be higher than the principal amount. Down payment, prepayment, or extra EMI are some of the prominent options to reduce interest burden. But if one is not in a position to do either of them and is left with a little amount after paying their equated monthly instalment (EMI), there can be another way to lighten the interest burden. It can be to make a parallel investment alongside paying your EMI. One of the options may be to invest through SIP in a mutual fund scheme. Though it will not reduce your EMI, it may help you build a large corpus along with your home loan repayment. Here, if you invest just 10 per cent of your EMI in a SIP scheme and get a 15 per cent annualised return on that, even that amount in 20 years can help you build a corpus that can match your interest amount. In this write-up, know how it may be possible.
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Home Loan Conditions
Here, we are taking the example of a Rs 55 lakh home loan at a 9.50 per cent interest rate for 20 years.
What will be EMI?
The estimated EMI in the given conditions will be Rs 51,267.
What will be the interest rate and repayment amount?
The estimated interest rate on a Rs 55 lakh principal amount will be Rs 68,04,132, and the estimated repayment amount will be Rs 1,23,04,132.
What will be the mutual fund SIP investment amount?
Since the estimated EMI amount is Rs 51,267, the monthly SIP amount will be Rs 5,126, one-tenths of the EMI.
What will be the mutual fund SIP investment amount?
One can start the SIP in an equity mutual fund, but the condition is to get 15 per cent annualised return. They need to run it for 20 years, the same as the duration of the loan.
What will be estimated SIP returns in 20 years?
The amount invested in 20 years will be Rs 12,30,240.
What will be estimated SIP returns in 20 years?
At 15 per cent annualised SIP returns, estimated long term capital gains will be Rs 55,72,338, and the expected amount will be Rs 68,02,578, which is nearly the same as the estimated home loan interest amount in 20 years.
What will be post-tax returns?
On Rs 55,72,338 long-term capital gains, there will be Rs 1,25,000 tax exemption, so the estimated taxable income will be Rs 54,47,338.
What will be post-tax returns?
As per the prevailing 12.50 per cent long term capital gain tax rate, the estimated tax will be Rs 6,80,917.25. In such a way, the estimated post tax return will be Rs 48,91,420.75.
What if you continue investing 1 year more?
To cover the gap between capital gains and the interest amount, there may be two options- to continue investment for 1 more year and get a 15 per cent annualised return, or to increase your SIP amount by a bit. We are taking here the first scenario, where you continue investment for 1 more year.
SIP returns in 21 years
If you continue investment for 1 more year, you will invest Rs 12,91,752, which will be Rs 61,512 more than your investment in 20 years, but if you get 15 annualised returns on that, your estimated long-term capital gains will be Rs 65,97,616, and the expected amount will be Rs 78,89,368.
SIP returns in 21 years
Even after paying 12.50 per cent long term capital gains, the expected amount will be Rs 70,80,291.