everse your EMI to purchase a Mercedes.
According to a recent article, SIPs are the main rival preventing Indians from purchasing luxury goods. This statement was made by the Sales & Marketing Head of Mercedes Benz India. In October 2022, the monthly SIPs exceeded Rs. 13000 Cr. for the first time. Here’s how we feel about the subject at hand.
First and foremost, WEALTH is important.
By default, luxury exists.
Investors should concentrate on building wealth.
By purchasing a Merc on EMI and continuing to work hard for the following 5–10 years to pay off the EMI, you are not displaying luxury.
The cheapest Mercedes retails for Rs. 50 lakh, and when equipped with all options, it will likely cost you Rs. 60 lakh when it arrives at your door. Moreover, you require an annual backup of Rs. 2 lakhs because of its high annual Maintenance and Insurance charges.
Consequently, if you have SIP for seven years, you can purchase a Mercedes (assuming that the cost of the car does not increase).
WHY SIP and not an EMI?
Let’s look at the points.
1. By making SIP investments, you are CREATING a corpus so that you can purchase assets with your funds rather than relying on borrowed future profits, which can be quite stressful. Additionally, SIP will enable you to capitalize on compounding and produce WEALTH. An EMI will have the opposite effect; your money will be GONE, the item you purchased is deteriorating, and all future earnings will be used to pay off the EMI rather than benefiting you.
2. Taking a vehicle on EMI is one of the worst decisions that many people do. Due to depreciation, by the time your EMI is over (typically 3-5 years), the vehicle’s value will have decreased to nearly nothing, and you will need to apply for another one.
3. Unlike an EMI, a SIP can always be STOPPED in the middle if you run into financial trouble. You are burdened even more if you fail to make any EMI payments; fees and penalties are assessed.
SIP helps in:
- Forming the habit of saving money and developing financial discipline.
- One may fulfill their financial goals with their funds, not borrowed funds.
- ZERO STRESS, DEBT results from EMI.
- Market levels are unimportant because SIP buys more units when the market is down and less when it is up.
- Enables one to understand the power of compounding.
- One pays interest on an EMI, while EARN Interest is in a SIP.
- Once one accepts the EMI, they have NO control. Due to their inevitable, required EMI payments, they will have to consider every small change in their life, such as changing jobs, moving, or purchasing additional assets, numerous times.
- Management of asset allocation. One cannot change the asset after taking an EMI; the debt outgo will remain the same. While one can always choose where to invest with a SIP (Equity, Debt funds, Gold funds, International Funds, etc)
Conclusion:
So, it might be clear by now which is preferable.SIP or EMI?
When the market declines, don’t stop your SIPs. Continue to use your SIP. When the market falls, you receive the maximum number of units. Consequently, when the market rises, which it eventually does, you receive the maximum return.
Keep investing, and keep enjoying the power of compounding.
Nivesh Ki Paathshala is always there to help you out if you need us. In case if you have any questions, you can respond to this email, and we would be happy to connect with you.