SIP Investment for 10 Years vs Home Loan EMI for 20 Years: Which can be faster route to purchase Rs 60 lakh home?
Home Loan vs Mutual Fund SIP: If you take Rs 60 lakh home for 20 years at 9 per cent annual interest rate, your estimated equated monthly installment (EMI) is Rs 53,984, total estimated interest will be Rs 69,56,054, and the estimated repayment amount will be Rs 1,29,56,054.
Home Loan vs SIP Investment: When we take a home loan, we commit with the bank for a long duration. Most home loans are for 20 years duration or longer. A longer duration often makes your interest amount larger than your principal amount. E.g., if you are taking a Rs 70 lakh home loan for 20 years at 9 per cent annual interest rate, your estimated monthly equated instalment (EMI) will be Rs 62,981, the estimated total interest will be Rs 81,15,396, and the estimated repayment will be Rs 1,51,15,396. Is there a way out to save interest amount? In a loan, it is impossible! But there can be alternative ways, which can help you stay away from the loan trap. Instead of taking a loan, if one is starting SIP investment in a mutual fund(s), here we will show how it may help them arrange money quicker to purchase the Rs 60 lakh home.
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(Disclaimer: This calculation is for knowledge purposes only. Do your own due diligence or consult an expert before financial planning.)
Home loan conditions
We are taking Rs 60 lakh as the home loan amount. We will take it for 20 years at 9 per cent annual interest rate.
Home loan EMI
Given these conditions, the estimated EMI will be Rs 53,984, total estimated interest will be Rs 69,56,054, and the estimated repayment amount will be Rs 1,29,56,054.
What if you start SIP with same amount as EMI?
What if instead of taking a home loan, we start an SIP in a mutual fund(s) scheme and get 12 per cent annualised return on the investment.
What if you invest that money for 10 years through SIP?
In 10 years, your SIP investments at Rs 53,984 a month will be Rs 64,78,080, the estimated capital gains will be Rs 56,16,273, and the estimated total amount will be Rs 1,20,94,353.
What will be the capital gains tax on it?
With Rs 1.25 lakh exemption and 12.50 per cent interest on long term capital gains, the tax amount will be Rs 6,86,409.125. So, post tax long term capital gains will be Rs 49,29,863.875.
What will be inflation-adjusted capital gains?
If you calculate returns adjusted with 6 per cent annual inflation, the pre-tax estimated capital gains will be Rs 23,35,579.
What will be inflation-adjusted post tax long term capital gains?
After the Rs 1.25 lakh exemption limit and 12.50 per cent tax rate, post tax capital gains will be Rs 19,34,256.625.
Where will you save more?
You can see that in just 10 years, at 12 per cent growth rate and after adjusting with inflation, your capital gains will be Rs 19,34,256.625 more than your home loan requirement of Rs 60 lakh.