Which is better – EMI or SIP (monthly savings)?
Can I buy IPhone-11 on Sept 27 th ?
Last night we ganged up for dinner, to celebrate my dear friend’s
birthday. Amid talks on life, markets and bosses, one specific topic that
caught everyone’s attention was that our birthday girl gifted herself a Scooty!
She narrated her story on how she was saving for over a year to buy this
Scooty, and how her travel will now be so damn easy. Sounds so nice.
As usual, one of us, the Wise-guy interrupted, giving Gyan on
using the EMI option, thru which the birthday girl could have got the Scooty much
earlier. To this, our birthday girl smiled and replied that she doesn’t like a
loan on her head, also the interest on the loan would just add up on the
burden. Saving is easy for her, living with a loan (however small), is
difficult. Though that’s her perspective, but not many of us bought this logic
last night 😉.
It’s
the same story across the millennials, where instant gratification is the buzz word.
IPhone-11 will be launched on Sept 27th, and I know many of us are
just waiting for the day to grab & show the latest asset around.
It all looks attractive (EMI I mean), but none of us gets down to
calculate the devil in it, the interest we end up coughing, to achieve this
goal. Let’s understand this thru a very basic example, i.e. Rs.5,000/- paid as
EMI for 12 months and Rs.5,000/- saved as SIP for 12 months.
EMI Option: Rs.5000/- EMI per month, for 12 months means that,
one can purchase product worth Rs.56,275/- only, as rest of the amount i.e.
Rs.3,725/- will be paid as Interest to the bank. Noting comes free.
Savings (SIP) Option: Rs.5000/- saved
per month, for 12 months goes to a RD account in bank, @8%, end of year one
will have Rs.62,665/-in the account or Rs.6,390/- extra compared to EMI
above. On the other hand, if same goes to Mutual Funds, with higher
returns, depending on tenure & risk profile, this extra amount could be
more.
Idea
is not about the last minute purchase, but the discipline to start savings at
the first instance, i.e. first salary… which also means, since I started saving
from day 1, I can literally buy my IPhone-11 costing 65k on Sept 27th
😉.
