Investing in SIP while Repaying a Home Loan: A Strategic Approach
June 2025
There’s this short film on a popular social media platform where an expert advises the viewer to set up a SIP while beginning to repay a home loan. The suggestion is: you can cover the interest cost of your home loan by investing in an SIP for the same tenure as your home loan. For all home loan payers, the question is: does such a solution work?
When repaying a home loan, it's essential to prioritize debt repayment, especially if the interest rates are high. Investing in a Systematic Investment Plan (SIP) while repaying a home loan can be a good strategy, but it depends on individual financial goals and risk tolerance.
Pros:
- Disciplined Investing: SIPs promote disciplined investing, helping you build wealth over time.
- Power of Compounding: SIPs can benefit from the power of compounding, potentially generating higher returns in the long run.
Cons:
- Opportunity Cost: Investing in SIPs while repaying a home loan might mean diverting funds that could be used to prepay the loan, potentially saving more on interest costs.
- Risk vs. Return: SIPs carry market risks, and returns may not always be higher than the interest savings from prepaying the loan.
Strategy:
- Prioritize High-Interest Loan Repayment: Focus on repaying high-interest loans first and then consider investing in SIPs. The strategy works in reducing the interest burden on your home loan EMI only if you do not have any other high interest loan being repaid simultaneously.
- Allocate Surplus Funds: Invest in SIPs after ensuring you have surplus funds that won't impact your loan repayment or emergency fund. Ultimately, it's crucial to evaluate your financial situation, goals, and risk tolerance before deciding to invest in SIPs while repaying a home loan. Ideally, consult a financial advisor for personalized guidance.
Things to watch out for:
Once you are in the SIP, stay the course and don’t get into alternative schemes just because someone offers a hypothetical higher number in terms of estimated RoI. Suppose you are invested in a scheme that gives you x as returns; someone suggests an alternative that might give you x-plus-something more. Ideally, if you are already in the scheme since some years, stay in the existing scheme.
Last Word:
Planned solutions come true if one continues the investment decision with loyalty and dedication until the goal is achieved. Keep in mind the original thought which drove the decision for a particular investment strategy and stay the course.
~ Karan Kariwala
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