How To Use SIP Based Investment To Buy Home?
Buying your own home might be a long time desire for you. You have everything planned right from the location, the type of property, to your interiors and furniture. You even make a proper budget regarding your spending so as to be eligible for a better home loan. But, is a home loan the only option for buying an expensive property?
Systematic Investment Plan is a great option when it comes to contributing dedicatedly for your future. Here, you invest a fixed amount for a fixed period of time and it helps you meet your goals in an organized manner; just like Equated Monthly Installment (EMI), you pay for your home loan. Yes, you have read it right. Do you want to know the reason behind it? Read this:
Why is SIP based investment a valid option to buy a home?
1) Timing the market is not necessary
SIP is a systematic way of investing in the market and therefore you do not need to time the market for it. Once you make a goal of owning a house and you have a plan to reach that goal, don’t wait for the right time to invest. SIP’s ensure that the time you invest is the right time for you.
2) Investment convenience
SIP allows the investor to invest in mutual fund without any hassle or intervention required from their part. The investor only needs to give standing instruction to their bank to transfer a stipulated amount on a fixed day every month towards SIP. This reduces the trouble of the investor to remember and deposit it manually. It also ensures that you do not delay in payments.
3) Rupee cost averaging reduces risk
As mentioned earlier, the time you invest is going to be the right time for you. You can tackle the market fluctuation and gain maximum profit on investments with a long term investing approach of Rupee Cost Averaging. It ensures that when the rates are low, you get more NAV (Net Asset Value) and when the price is high, you get a lesser number of shares. Not only is this automated, it also saves you from the risk of buying more when prices are high. Investing a monthly fixed income maintains the average cost of investment at a lower level thus, giving you profit in a long term.
4) Power of compounding increases chances of meeting long-term plans
‘The earlier, the better’ is the mantra to be successful in investments. Compounding is a key factor for investments and returns. The power of compounding comes into play when your returns are reinvested and you earn interest on your interest earned too. The profit is much higher when you do this for a longer period of time.
5) Offers liquidity and is flexible in terms of investment
SIP offers you tremendous amount of flexibility when you invest in it. You can choose the amount which can be as low as Rs. 500 to the tenure of your investment. You can also choose the frequency of your investment as being daily, weekly, every fortnight or every month depending on your convenience. You can stop and close your SIP at any time as well and hence, it provides you with a fair amount of liquidity too.
In a nutshell
SIP’s can help you accumulate money for the down payment or for buying your home with full payment if you dedicatedly plan and invest in it for a longer term. If you invest the amount in an SIP which you would otherwise invest in your EMI, the profit through the effect of compounding is much more, than in the long run.
Hence, from a financial point of view, it is advisable to invest in a long-term SIP of around 15 years rather than spending the same amount on EMIs and not getting anything out of it.
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