Franklin Templeton sends me a message everyday that SIP is a good EMI. I am not so sure how helpful this ad is. Let me explain..when you are talking to a class about SIP or to a potential first investor they have no clue what is SIP and these are the questions/ comments which arise:

  • You are asking me to invest in a Mutual fund, actually I want to invest in a SIP
  • Rs. 20,000 a month is fine, but what if I cannot pay for one month?
  • If I skip paying one month will have to pay for 2 months in the next month?
  • If I cannot pay for a month what happens?
  • I will be retiring in 12 years how can I sign up for a 14 year SIP?
  • Will I be able to stop the SIP in case I have some other problem?
  • What is the penalty for stopping a SIP?
  • How can I increase the SIP automatically?
  • What happens if the amount accumulated is not enough for my goal?
  • What happens if I wish to put a lump sum?
  • How can I vary my SIP – some months I may want to invest more?

You get the drift?

Too many people have told them that a SIP is an EMI. I too used to call it the ‘dream emi’ . You dream, you set your goals, and do a SIP. However for most people EMI has the following characteristics:

  • It is compulsory
  • If you skip one month, in the next month you will have to pay for 2 months
  • If your cheque bounces, there will be cheque bouncing charges, penalty, and you will have to make good the amount
  • You cannot alter the amount DOWNWARD at all
  • If you cannot pay for whatever reason it is better to borrow money from a friend or a relative
  • You should take it for the minimum period and pay it off as soon as possible

You see the difference between SIP and EMI? I stopped equating even with bank RD.

Simply because a bank RD also has to be paid for each and every month.

So if you do skip one month, in the next month you will have to make good the amount of the previous month also. EMI has a stigma and should be finished as soon as possible.

It is nice to own a house, but an EMI is a burden

A house is loved, but an EMI is hated

If you have some problem in life and the EMI is discontinued it has a terrible implication – your house will be lost

Everything else can wait but an EMI has to be paid

EMI is onerous

I am sure FT has the smartest marketing brains, but sorry for me equating an EMI with an SIP does not work. Just my POV.


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