Systematic Investment Plans (SIP) vs. Equated Monthly Instalment (EMI)

A lot of investors consider SIP as EMI’s. This creates a perception that SIP is something like an EMI (Equated Monthly Instalment). This is incorrect. Rather nothing can be further from the truth. Youth of today is more interested into the EMI, be it for a smart phone or a vacation or a fancy laptop. Whereas a SIP, is the best form of investment.

EMI (Equated Monthly Instalment)is consumption and at times conspicuous consumption, and SIP is an investment.

Given below is the comparative analysis on SIP vs EMI:

1. Nature of the Scheme: SIP is the systematic investment of the investor’s money in the form of stocks or equity funds for a fixed period of time. Though it gives delayed gratification as the return is coming after a certain span of time, it is a great tool for wealth creation.

In case of EMI, you pay interest to a financer to finance a product you wish to own. In case of a SIP (Systematic Investment Plans)you make a periodic investment from your own money to create wealth or meet one or more of the financial objectives that may be important to you.

2. EMI comes with a burden in mindwhereas SIP doesn’t.: EMI(Equated Monthly Instalment)is a fixed outflow of cash for a fixed period of time. Any default or delay leads to penal interest and default may lead to harassment and frantic calls from the financer and his recovery agents.Thiscreates stress. Sometimes the expenses for a particular month increase and it becomes difficult to pay the EMI. This may cause sleepless nights. EMI can never be compromised at the cost of other expenses, no matter how important.

SIP(Systematic Investment Plans) is totally different. Even if you miss a month or 2, your investment stays intact and the mutual fund company doesn’t not charge you even a single rupee. You can conveniently stop your SIP anytime and even increase or decrease the amount.

3. Investment Discipline: SIP helps to create and maintain the investment discipline. You may fulfil your wishes for important financial objectives like owning a house or your child’s higher education. However, an EMI doesn’t create any long term asset rather you are able to afford a product you may like or need. Another thing is that the EMI can be disastrous if used for personal loans or for overseas vacation which may be unaffordable especially in times of financial misfortune like losing a job etc.

Hence, though EMI plays an important role when you can’t wait to buy something that you may need, in SIP you can buy the same product or maybe something better but at a later date and in a more systematic manner. To know more about sip benefits & best mutual funds plans in India call mutual fund advisor.