SIP it steadily to build your dream house

The nameplate's shining on the doors of the apartment you bought recently, but behind it is a string of home loan equated monthly installments (EMIs). Ever wondered what that EMI amount could turn into if it had turned investments in a mutual fund systematic investment plan? Though buying a home is a big goal that you chase, it would do better if you pave that path with mutual fund investments. Know how.

Availing a full home loan

Buying a home is not always about that special discount scheme that the builder dangles before you or the extra amenities promised. Investing in real estate is a serious financial bargain that no matter how rosy the picture is, involves a home loan and a big chunk of your financial savings. Yes, interest rates are falling, but let us understand the real numbers at play. Let us assume that you are eyeing an apartment that costs Rs 1 crore (including stamp duty and statutory charges). Even if the bank agrees on a Rs 70 lakh loan with a 30-year tenure and an 8% interest rate, the interest payments over the years itself would be huge.

Pick SIP over EMI

The EMI, if you do avail of the above home loan, works out to Rs 51,000 out of your monthly savings. Over the years, your interest payments will alone work out to Rs 1.15 crore, the way the magic of compounding works. How about turning this magic in your favour? And that spell is SIP – or systematic investment plan. An MF SIP will help you avoid an outright loan burden that could eat away at your finances slowly. It could help you save up over time for that dream home.

For instance, if you even start a monthly SIP of Rs 50,000 for the next 10 years, assuming a return of 10% (and a yearly top-up of 10%), the final amount that you could amass Rs 1.41 crore, greater than the loan you had planned to take a decade earlier. What of real estate prices, you many ask? That can be taken care of too.

Unlock your dream home

Even assuming the price on that apartment rises by 40% in the next 10 years (as per the National Housing Bank's Residential Property Price Index, prices in Mumbai have risen by 30% since 2013), your MF SIP has got it call covered. Else, you could take a smaller loan of Rs 20 lakh (with a 10-year tenure) and fund the rest with that corpus.

Keep that SIP going

If you continue the above SIP for another four years, with the return remaining the same, you could amass a kitty of Rs 33-35 lakh that could pay of the smaller Rs 20 lakh loan, well before time.

So, before you pile on that home loan on your books, it's time to read up a bit on MF SIPs.

The writer is head, investment solutions at