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Why you should increase EMI payments and investments

ET Wealth shows you how much you can save on total interest outgo on EMI by increasing the payments every year.

, ET Bureau|
Updated: Jul 22, 2019, 12.37 PM IST
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money-getty
If you hike your investment every year, here's how much you can accumulate.
As disposable income increases, the average Indian is in a better position to save on interest costs and cut loan tenures, while accumulating more wealth. ET Wealth shows how.

We can afford to increase our periodic investments
India's net national disposable income has grown at a CAGR of 10.8% since 2012-13. This income is what is available to all economic agents (households, government, and corporates) for consumption or savings.

Net disposable income (Rs lakh crore)
2012-13 91.2
2013-14 102.9
2014-15 113.8
2015-16 125.7
2016-17 138.7
2017-18 152.5
Source: RBI

Increasing EMIs annually can bring down home loan tenures and interest costs
For a home loan of Rs 30 lakh at 9% interest and a tenure of 20 years, the EMI works out to Rs 26,992. The total interest outgo is Rs 34.78 lakh.
If the borrower increases EMI payment
EMI-increase

Interest outgo falls
interest-outgo

How you save on interest cost across different rates
Home loan amount Rs 30 lakh, tenure 20 years
home-loan-interest

Increasing periodic investments affects the maturity value
If Rs 1 lakh is invested every year at 10% p.a, it will grow to Rs 63 lakh in 20 years.

If the investment of Rs 1 lakh is increased by:
Rs-1-lakh-investment

Accumulated corpus at different rates of returns
Rs-1-lakh-investment-hike

Increasing investment amount regularly helps reach goals faster
If Rs 1 lakh is invested every year at 9% interest rate, it will take 25.8 years for an investor to accumulate Rs 1 crore.
regular-investment

Number of years to accumulate Rs 1 crore
regular-investment-hike

Hiking SIPs can help meet goals faster
SIP needed to reach a target corpus of Rs 2 crore in 20 years
hike-sips
The initial cash outflows in terms of monthly SIPs will be lower for investor who agrees to increase it at a specified percentage every year.

Increasing investment amount regularly helps the risk-averse
investment-for-risk-averse


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