Money Tip: Pause SIP or EMI moratorium? Which one is advisable during COVID-19 financial crisis
During the COVID-19 pandemic, cash flow of a huge number of earning individuals has been hit badly. In such a situation, the RBI offered bank loan EMI moratorium that the majority of the Indian banks implemented immediately.
During the COVID-19 pandemic, cash flow of a huge number of earning individuals has been hit badly. In such a situation, the Reserve Bank of India (RBI) offered bank loan EMI moratorium that the majority of the Indian banks implemented immediately. In fact, after the RBI decision to further extend that for next three months was also implemented by banks immediately. But, the question that arises here is whether it is wise to avail of EMI moratorium and at the same time continue paying one's monthly mutual fund SIP (systematic investment plan), if one has them? According to tax and investment experts, it's better to pause SIP and continue bank EMI.
Batting in favour of the SIP pause option against EMI moratorium, Pankaj Mathpal, Managing Director at Optima Money Managers said, "It's better to close one's debt or loans as soon as one can. Since EMI moratorium extends the longevity of your debt, it's better to avoid this option and pause one's SIP. After all, even if you avail of the EMI moratorium, you will have to pay an additional interest incurred during the moratorium period. But, if you avail of the SIP pause option, you need not pay any additional penalty for that."
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Speaking on why SIP pause is a better option than the EMI moratorium, Jitendra Solanki, a SEBI registered tax and investment expert said, "In both options, tenure is going to increase. If you opt for a SIP pause option, your SIP tenure will get increased and then it will have negligible impact on your returns as the monthly SIP is calculated on the average number of NAVs one accumulates during the investment period. But, since the matter is directly related to one's cash flow, it will have at least impact on one's budget for nearly 6 months. So, if the person hit by the Coronavirus crisis opts for the EMI Moratorium, it will have to be continued once the offer is lifted. So, one should choose that option, which is in one's hand and that option is SIP pause."
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