Illuminating Homes and Investments: Achieve Your Dream Home Interest-Free with Minimal Mutual Fund SIP Contributions
“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” – Franklin D. Roosevelt
In the wealth management industry, we categorize asset classes into several segments, such as Equities, Fixed Income, Cash and Cash Equivalents, Real Estate, and Commodities. Among these, real estate stands as a powerful hedge against inflation, where property values and rental income often rise alongside inflation, preserving the purchasing power of your investment.
Historically, real estate has always been a key part of any investment portfolio. Today, modern wealth managers are integrating real estate with financial investments, offering investors a more balanced approach to asset allocation. This strategy combines liquid financial assets and real estate, both of which complement each other for long-term growth.
The demand for larger residential spaces has increased significantly, particularly after events like the COVID-19 pandemic. But, can individuals from all income groups afford to upgrade their homes? The answer is YES — with the right financial planning and a balanced strategy for managing both EMIs and investments.
Many investors I’ve met post-pandemic are eager to upgrade their homes but hesitate due to the high interest costs associated with home loans. I firmly believe that, with discipline and a sound strategy, you can purchase your dream home without being burdened by interest payments.
The Strategy: Build Corpus equivalent to interest component
Funding home loan EMIs through mutual fund SIPs (Systematic Investment Plans) requires strategic planning and financial discipline. If you’ve taken—or are planning to take—a home loan, you are likely concerned about the interest payments. However, with a modest SIP contribution, you can recover the interest cost efficiently. In most cases, the interest paid on a long-term loan is significantly higher than the principal loan amount.
Let’s consider an example of a 20-year loan at an interest rate of 8.75%. In such a scenario, the interest component is at its highest in the initial years, and it takes about 12 years (146 months) to reach a 50:50 split between principal and interest in your EMI payments.
Is there a way to offset this interest burden? YES, there is. You can effectively recover the interest you pay by investing in mutual funds.
By starting a SIP of just 0.10% of your home loan amount in a mutual fund, you can recover the interest costs over time.
Let’s take example of Loan amount of ₹ 1 Crore:
| Home Loan Amount | Rs.1,00,00,000 (1 Crore) |
| Interest Rate | 8.75% |
| Tenure | 240 Months |
| EMI Per Month | ₹ 88,371 |
| Interest Payable | Rs.1,12,09,057 (1.12 Crore) |
| SIP Amount (0.10% of Loan amt) | ₹ 10,000 |
| Total Invested Amount (in 240 months) | Rs.24,00,000 (24 Lakhs) |
Total Corpus accumulated over a period of 20 years considering different returns will be
| @ 12% p.a. | Rs. 98,92,554/- |
| @ 13% p.a. | Rs.1,13,32,424/- |
| @ 14% p.a. | Rs.1,30,11,660/- |
| @ 15% p.a. | Rs.1,49,72,395/- |
Based on these returns, you can cover 88% to 133% of the interest component of your loan by investing just 0.10% of the loan amount in a mutual fund SIP.
The key to achieving this lies in following fundamental investment principles:
- Discipline in regular investing
- Diversification across asset classes
- Long-term commitment to investments
- Goal-based planning
- Avoid timing the market
- Embrace market volatility as part of the investment journey
With this approach, you can turn your dream of owning a home into a reality—without the heavy burden of interest payments weighing you down.
Prashant V Wagh
Founder & CEO, Goldenbulls Financial Services Pvt Ltd
