As a Financial Planner or a prudent investor one would be very reluctant to take on debt, it’s the right approach in a majority of the cases. But imagine if you have accumulated the amount required for a big ticket purchase and when you land up to buy it, somebody offers you an interest free loan! Should you grab it? Or continue as planned and pay upfront for your purchase?
I suggest grab the offer with both hands, provided there are no hidden charges and the processing fee is really small, like in the case of Bajaj Finserve. You have an opportunity to earn 8- 8.5% p.a. while paying 0% interest on the borrowed sum! What could be better!
Let me explain further on the thought process behind writing this article. A dear friend of mine who is setting up home wanted me to accompany her to help decide on the brand, model, etc. Once we were done with the nitty gritty of picking the model, the person at the cash counter asked her if she would like to avail of interest free EMI. She being a prudent person said no without checking the offer. With great skepticism I asked about the offer and was amazed to find that the offer was indeed interest free and included a small processing fee which was negligible given that she was buying goods worth two lakhs. The icing on the cake was the process was very simple with very basic documentation.
I suggested that she invest her corpus in liquid funds, and withdraw each month, from the liquid fund to pay for her EMI. I explained that investing in liquid funds (a type of debt mutual fund) is very simple with a Dmat account and you could invest your surplus even for 2 or 3 days, and earn interest on it. Further, when you want to withdraw the funds you can do so at the press of a button and the funds hit your bank account the next working day. She saw merit in my recommendation and opted for the EMI, parking her funds as suggested. On a purchase of Rs.200,000 she would end up earning Rs12,000 post tax in a period of 2 years!