Warren Buffet
“Someone’s sitting in the shade today because someone planted a tree a long time ago.”

The best time to invest is several years ago. The second-best time is now.
The sooner you get in the better. Don’t wait to buy stocks. Buy stocks and wait.

The earlier you start, the better off you will be in the future. Warren Buffett planted his tree a long time ago. He bought his first stock at age 11 and he regrets that he didn’t start earlier!

Even a small investment of Rs. 5000 every month in Mutual funds will give you Rs 75 lakhs in 20 years and 3 crore in 30 years.

Last time we discussed how Ajay and Neha had taken a home loan of 50 lakh and paid EMI of 45k monthly for 20 years. They also started an SIP of 5k for the same tenure.

After 20 years they had paid off the principal amount of 50 lakh, plus interest of 58 lakh, a total of 1.08 crore. The SIP of 5k gave them close to 58 lakh in 20 years, equal to the amount they had paid as interest over the years on their home loan.

Now some of you have asked – What if they would have paid that surplus of 5k towards their home loan instead of starting an SIP?

Well, in this case, they would have paid off the home loan in 15.5 years. After the loan had been paid off, they started to invest 45k plus 5k for the remaining 4.5 years which gives an amount of close to 37 lakh (assuming 13% CAGR).

Since the home loan was paid off in 15.5 years, they will not get the tax benefit under Sec 24 on the interest component for the remaining 4.5 years which comes to 87k (20% tax bracket) and 1.31 lakh (30% tax bracket).

So the net benefit would be close to 36 lakh (37 lakh – 87k) against 58 lakh.

Counter argument – some people may not be comfortable with a large housing loan and to reduce their stress, they may want to get rid of the loan burden at the earliest. In that case paying off the home loan would be the best option.

From the personal finance point of view, One should only consider prepaying their home loan if current investments or opportunity cost fetches a lower return than the actual (after tax effect) interest burden.

Ajay and Neha were relieved, the home loan which they had taken 20 years ago was finally over. They had taken a 50 lakh loan at an interest rate of 9% and the EMI worked out to 45k monthly whereas they had budgeted for 50k so they decided to invest the difference – 5k.

Every month they paid 50k, and over these 20 years had paid the Principal amount of Rs. 50 lakh plus interest of Rs. 58 lakh, a total of 1.08 cr.

When they went to the bank to collect the original documents and NOC from the bank, they were in for a pleasant surprise. At the time of disbursement of the loan, the monthly investment of 5k which they had started in a Mutual fund, is now worth close to 58 lakhs, which is the amount of interest paid on the loan.

Would you also like to make your Home Loan Interest-free?

Simple. Start an SIP which automatically deducts 0.1% of the home loan amount on the same day as that of your home loan. You won’t even notice it, but will be elated when you receive the big fat paycheck at the end of 20 years.

Increase the SIP amount to 0.2% of loan amount and you will get back the Principal and Interest amount.

We are living in a world that is changing dynamically.

Reading the summary has replaced reading a book.

Crash diets have replaced exercises.

In today’s age of instant gratification, a few investors may be upset that their SIP has not grown enough in a year.

Though the world is changing dynamically, a day is still made up of 24 hrs, a year of 365 days.

Hitting the gym today will not make us fit by tomorrow.

Reading a page of a book today will not make us wise by tomorrow.

Investing today will not make us rich by tomorrow.

But when given time, thanks to rupee cost averaging and compounding effect, SIP helps in amassing wealth.

Someone who started investing Rs.10k from Jan’ 07 to Dec’ 11, would have invested 6 lakh and it’s value would be 6.9 lakh: a return of only 5.5%.

Kotak or YES Bank savings account would have given better returns.

However if the SIP was continued till Dec’ 15, the amount invested would have been 10.8 lakh and it’s value would be 23.1 lakh: a staggering return of 16.2%.