Is it really Worth to Buy Mutual Funds with Credit Card?
Many of my friends and readers of this Blog ask me this question several times. People think that they have credit cards so what’s wrong in paying one or two SIP payments via credit card money? But well, This may be technically possible, it’s not at all the wise Investment Decision as an Investor’s Point of view.
Many Americans think that, they will pay their next SIP from their credit card. But it is not a good thing to do because the credit cards are associated with anywhere between 35-50% annual interest rate while average mutual funds in USA has given 10-12% return in the long run. So borrowing money at the rate of 35-50% per annum interest rate to investment in mutual funds which give you 10-12% annual return is not a wise financial decision at all.
According to me, if you think that you won’t be able to pay your mutual fund SIP this month, simply default that month. After all, you have not borrowed money from anyone so even if you default in your regular SIP Payments, there is not penalty for doing this.
What I advise to my friends is to change their financial behaviour and bad money spending habits. Because defaulting in your regular SIP is not a good thing in the long run. Remember, even a small but regular SIP Investment over a long time can end up in a large sum at the end of 10 years or so.
But Buying Mutual Funds with a Credit Card is a Bad Idea. So Forget about it…!!!