Financial Planning Essentials

Usage

Covering loan interest with SIP is a strategy where one invests in a Systematic Investment Plan (SIP) to generate returns that can be used to cover the interest payable on a loan.

The idea behind this strategy is that instead of paying the interest on a loan from your income or savings, you use the returns from your SIP to cover the interest payments. This way, you can reduce the burden of your loan and also ensure that your investment is being used productively.

The steps to calculate the required SIP amount are as follows:

1. Calculate the EMI that you will pay for the loan amount based on the interest rate and tenure.
2. Calculate the total amount paid over the tenure as EMI and subtract the loan amount to get Interest paid.
3. Calculate the SIP amount required to generate return that can match the interest paid by using same tenure as the loan and return rate expected from the investment.