Have you ever heard the saying, "Small drops make an ocean"? This principle applies perfectly to financial growth, whether it is repaying a loan faster or building wealth through investments. The image above illustrates how slight modifications to loan repayment can significantly reduce the tenure. Similarly, in mutual fund investments, even a slight tweak in strategy—such as increasing SIP contributions or reinvesting gains—can substantially alter long-term wealth creation.
Let’s explore how applying extra effort—whether in loan repayment or investment—can transform your financial future.
Loan Repayment: How Small Changes Can Cut Years Off Your Debt
Loans, especially home loans, are often structured over long periods—20, 25, or even 30 years. However, with smart repayment strategies, you can significantly reduce the tenure and save a fortune in interest payments.
1. Fixed EMI: The Cost of No Action
When you take a loan with a fixed EMI (Equated Monthly Installment) and do not make any extra payments, you end up paying the loan over the entire tenure. This approach is similar to keeping your investments static—your money will grow, but at a slower rate compared to an optimized strategy.
Example:
If you take a ₹50 lakh loan for 25 years at a 9% interest rate, your EMI will be around ₹41,922. Over 25 years, you will end up paying ₹1.26 crore in interest alone—far more than the principal borrowed!
2. Increasing EMI by 5% Every Year
By increasing your EMI by just 5% every year, your loan tenure shrinks dramatically. Instead of 25 years, you can clear your loan in 13 years 3 months. This method is equivalent to increasing your SIP (Systematic Investment Plan) contribution in mutual funds.
3. Increasing EMI by 10% Every Year
If you stretch a bit more and hike your EMI by 10% annually, you can clear your loan in just 10 years 2 months! Imagine saving nearly 15 years of EMI payments and channeling those funds into investments instead.
4. Paying One Extra EMI Every Year
If you make an additional EMI payment every year, your loan term reduces to 19 years 3 months—not as aggressive as increasing EMIs, but still significantly better than the standard 25-year tenure.
The Lesson? Small, Consistent Efforts Reduce the Burden Over Time
If you get a salary hike, instead of lifestyle inflation, why not allocate a portion to increasing EMI payments? This habit will ensure financial freedom years earlier than expected.
Mutual Fund Investments: The Same Strategy for Wealth Creation
Just like small increments in EMI can lead to massive savings on interest payments, small increases in SIP contributions can create enormous wealth over time.
1. Fixed SIPs: The "No Action" Approach
Let’s say you invest ₹10,000 per month in an equity mutual fund for 25 years with an assumed return of 12% per annum.
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Your total investment: ₹30 lakh
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Your wealth at the end of 25 years: ₹2.54 crore
Not bad, right? But what if you increase your SIP contributions every year?
2. Increasing SIP by 5% Every Year
By increasing your SIP by just 5% every year, your corpus grows exponentially.
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Your total investment: ₹50.6 lakh
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Your wealth at the end of 25 years: ₹3.84 crore
This simple tweak has created an additional ₹1.3 crore in wealth without much effort!
3. Increasing SIP by 10% Every Year
If you increase your SIP by 10% annually, the results are even more dramatic:
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Your total investment: ₹87.5 lakh
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Your wealth at the end of 25 years: ₹6.48 crore
This is the power of incremental growth! A slight increase in investment creates massive wealth over time.
The Magic of Compounding vs. The Cost of Interest
The beauty of mutual fund investing is compounding, where money grows exponentially over time. In contrast, loans work against you due to compound interest working in favor of the lender.
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Loans: The longer you take to repay, the more interest you pay.
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Investments: The longer you stay invested, the more wealth you create.
Thus, just like increasing EMI reduces debt burden, increasing SIP contributions accelerates wealth accumulation.
1.01 vs. 1.00: The Power of Small Changes
A famous mathematical principle states:
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1.00¹⁰⁰ = 1.00 (No growth)
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1.01¹⁰⁰ = 2.70 (Significant growth)
If you improve by just 1% daily, the difference after 100 days is 2.7 times better. This principle applies to both loan repayment and investing.
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Increase your EMI or SIP just slightly every year → Massive impact over time.
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Keep your EMI or SIP fixed → You miss out on potential savings or wealth growth.
Action Plan: Apply This Strategy in Your Financial Life
For Loan Repayment:
✅ Increase your EMI by 5-10% every year.
✅ Use bonuses and windfalls to make prepayments.
✅ If increasing EMI isn’t possible, make one extra EMI payment per year.
For Mutual Fund Investments:
✅ Increase your SIP by 5-10% annually.
✅ Reinvest dividends and capital gains.
✅ Secure excess gains during market booms and reinvest smartly.
Final Thoughts: Small Efforts, Big Results
Whether you're repaying a loan or investing for the future, small consistent efforts make a massive impact. Instead of waiting for a big windfall, start making incremental changes today.
The difference between financial freedom and financial struggle often comes down to who understands the power of small changes and who doesn’t. Now that you know, which path will you take?
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