Self and Rahul had an interesting conversation, to know, stick with us till the end.
Rahul: I want to start a SIP of ₹10000 in two different Mutual funds, ₹5000 each.
Me: Why two?
Rahul: As Warren Buffet says…. “Never put all your eggs in one basket”.
Me: That’s true but in another sense. Here the basket is an Asset Class meaning Gold, Real estate, Equity and Debt/Bank FD. Tell me your home loan details and your salary please.
Rahul: My salary is ₹1 Lakh and my EMI is ₹50000. As I took ₹52 Lakh loan for a house of ₹75 Lakh. Now it’s 3 years completed.
Me: That’s great. What are your current monthly expenses?
Rahul: Yes, but didn’t really go into that in detail!
Me: My dear Rahul, at the current cost of interest on your home loan. Your EMI is ₹50000 for 20 yrs. Meaning ₹50000x12x20 = ₹1.2Crore against your loan of ₹52 Lakh. ₹1.2 Crore – ₹52 Lakh = ₹68 Lakh interest for 20 years that is ₹3.4 Lakh interest per annum for saving ₹60000 tax. Your loss is ₹3.4Lakhs – ₹60000 = ₹2.8Lakh/ yr.
Rahul: OMG Really? Nobody told me about this. Not even my CA?
Me: Yes…And if you invest those ₹50000 per month in SIP for 20 years @ 12% it will be ₹4.99Crores.
Rahul: Oh…why did I purchase a home? Thanks, I will tell everybody not to invest in property. Instead start SIP in MFs.
Me: ‘Don’t save tax…. Save Money’. And yes…Mutual Fund SIPs average returns for the last 20 years have been 17%. So, the SIP of ₹50000 has grown to ₹10.11Crores.
Rahul: What about the ₹25 Lakh down payment I made?
Me: ₹5.77Crores after 20 years.
Rahul: Meaning ₹15.88 Crores in total. My ₹75 Lakh home after 20 years can never give me ₹15.88Crores.
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