How To Use SIP Based Investment To Buy Home?

Priyanka Sharma

14 Aug 2017

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. 

untitled

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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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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How To Use SIP Based Investment To Buy Home?

Priyanka Sharma

14 Aug 2017

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. 

untitled

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.

Have Referral Code?