EMI vs SIP - Which is best for you ?

EMI vs SIP - Which is best for you ?


Suppose, i want to buy a beautiful Smart Phone. It costs around Rs. 16,000/- in the Market. The Smart phone have the various features, but the money on my hand is a little less to buy it now. Otherwise, i have to wait for my next month paycheck.

Impulsive buying is a Character, it tempts to buy the Smart phone immediately. At that moment of thinking, there is an advertisement related on Smart phone. Yes, Lucky advertising. There is an offer comes by the Advertisement for the Smart phone, which i was intended to buy.

What a Surprise ! I can pay just Rs. 1,000/- as an upfront payment and can take it to home. I can pay the rest of it through Monthly installment - Absolutely with Equated Monthly Installment (EMI).

EMI (Equated Monthly Installment):

As per Investopedia website, It is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. EMIs are used to payoff both interest and principal each month, so that over a specified number of months or years, the loan is paid off in Full.

For Instance, My Loan amount is Rs. 15,000 and the rate of interest is 12 Percent. If i subscribed for 6 Months tenure, then the EMI is Rs. 2588/- Monthly. If opted for 12 Months tenure, then the EMI at Rs. 1,333/- monthly. Otherwise if i went for the tenure of 24 Months, the EMI stands at Rs. 706/- monthly.

As you can compare the amount of EMI with the tenure (Period), the EMI amount decreases as the months go long. I have to pay an additional amount which is interest fee of Rs. 528 for the 6 Months Tenure. Pay the amount of around Rs. 1000 and Rs. 1,950 for the One year and Two years tenure respectively.

EMI For a short term or Immediate needs, it may be helpful. We can buy our desired products immediately, without paying the entire cost. But, you are paying more than the Actual price by EMI.

Even if your buying an item with an EMI payment, you cannot get control over the Ownership of that item (Liability to pay it Full).

SIP (Systematic Investment Planning / Recurring Deposit):

It is nothing but, work like as a Recurring Deposits. Saving or Investing in a timely manner (Weekly, Monthly, Quarterly or Yearly) for the purpose of Future needs. At the end of maturity, we can utilize that amount to meet our Financial Goals or Future needs.

Systematic Investment Planning is not only available in Mutual Funds, but also in Postal Recurring Savings, Provident Fund, Chit Funds. It has a regular interval like Weekly or Monthly.

For a SIP Goal amount of Rs. 15,000/- and the expected rate of return is 10 Percent, I have to save or invest amount of Rs. 2,430/- monthly for the tenure of up to 6 Months, Rs. 1200/- monthly for the tenure of 12 Months and Rs. 565/- monthly investing for the period of 24 Months.

If you have a habit of Savings, you will not spend money quickly. Otherwise, you have a goal and invest accordingly. You can pay for the item by SIP and own the item - Take ownership completely :)

The SIP is good for the long term needs and wants like Education, Marriage and Retirement Planning.  You cannot set goals for unexpected happenings, so that you have to prepare for that - Like buying Term Insurance and Health Insurance Plans.
You have to take control of your situation, whether you want to Spend or Save.

Kindly share your views / comments with a smile :)

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