Use Market To Pay Your Loan Interest With This SIP Plan

Owning a home has always been one of the biggest dreams for Indian middle-class families. However, this often comes with big fat loans and painful interest rates. Moreover, the interest exceeds the principal amount in big tenure loans such as home loans. This often results in people getting a roof with a burden of interest.

Nearly 80% of urban Indians buy their first home through a loan. According to RBI data, India’s home loan outstanding portfolio crossed Rs 22 lakh crore in 2024, making it the single largest retail lending category.

Millennials and Gen Z now account for 53% of India’s home loan demand. But, they have an edge of both the time and earning potential to benefit from the magic of compounding. This blog by MINTIT will explore the less taken route to hassle free offset your big loans interest through a simple and small SIP plan.

A 2BHK Story

A young couple in Indore, Naveen and Muskan, recently purchased their 2 BHK home worth Rs 35 lakh for which they secured a home loan worth Rs 25 lakh at 8% interest. This binds them with a monthly EMI of Rs 19,295 for 25 years.

Post-realisation hit while they consulted with their advisor. He revealed some shocking data points of their home loan. With the interest of 8% per annum they are going to pay Rs 32.8 lakh as interest for their Rs 25 lakh home loan. Therefore, the couple will pay Rs 57.8 lakh in total while stressing with EMIs.

SIP Against Interest

Their mutual fund distributor suggested a panacea to offset this Rs 32.8 lakh of interest with just Rs 5.1 lakh of investment. Muskan was shocked and asked in curiosity, “How is it even possible?” The advisor then suggested Naveen to take care of EMIs and advised Muskan to start a parallel SIP of only Rs 1,700 for 25 years in a dedicated mutual fund.

This simple and hassle-free SIP plan will get them Rs 32.25 lakh in 25 years with 12% compounded annual growth rate (CAGR). This is almost equivalent to Rs 32.8 lakh of interest on their home and the money invested through SIPs for 25 years will be just Rs 5.10 lakh. In other words, it’s a smart strategy to pay the principal amount with salary and interest through the equity market instead of pocket.

This strategy can be applied to loans with different tenures. For example, a home loan worth Rs 25 lakh for 15 years at 8% rate will cost a total interest of around Rs 18 lakh. To offset this, a Rs 5,550 SIP for 15 years with 12% CAGR can get you Rs 18 lakh as returns.

This strategy can also be applied to your car loan. A car loan of Rs 10 lakh for 7 years at typical 9% interest with monthly EMI of Rs 16,000 will fetch a total interest of Rs 3.5 lakh. Vis-a-vis a smart SIP of Rs 7,500 in fund along with the EMI can get you Rs 3.59 lacs in 7 years as returns with 12% CAGR.

Power of Numbers & Behavioural Wins -

This plan resonates deeply with middle-class investors. Small SIP feels affordable and its impact over the long-term is immensely powerful. While EMIs feel like a burden, the parallel SIP gives a sense of active wealth-building.

Paying-off a home loan is necessary, growing your wealth is strategic. Together, they create financial peace.

Why Does This Work?

The genius of this strategy lies in the difference between loan interest and compounding equity returns. Loans interest is charged in a linear manner, whereas SIP grows in exponential manner, slow at first, but explodes with time.

With RBI cutting interest rates, borrowers have more room to channelise their savings into SIPs. Moreover, declining interest rates can offer the double benefit of lower interest plus continued wealth growth with SIP.

Notably, this smart strategy works well for big loans with long tenures. Home loans and car loans are particularly huge and long in tenures. SIPs shine and show their compounding effect in the long-term. So, download MINTIT and set up a smart, goal-aligned SIP plan because your money deserves to work as hard for you, as you did for it.

MINTIT, with its expert guidance can assess your risk profile and suggest you personalised mutual funds for such SIPs. So, you relax at your cozy home instead of having nightmares of heavy interest.

MINTIT, India’s dedicated Mutual Fund Platform which caters to your personalised goals and accompanies you to achieve your financial milestones is eager to help you build your wealth. Depending on your profile it can precisely suggest tailored investing plans to achieve your goals through best suited mutual funds.

Sign up to MINTIT now and start your mutual funds investment journey under professional guidance.