Annuity vs EMI

🔍 Why is an Annuity Payment Higher than 12 EMIs?

➤ Simple Answer:

Because annuity = EMI + interest on the reducing balance
Whereas EMI (in common usage) usually refers to monthly loan repayments — with principal + interest spread evenly.

But when you say "annuity payment is higher than 12 EMIs", you're likely comparing:

📊 Let’s Use a Real-Life Analogy:

Suppose you're comparing:

🔸 Case A: EMI (Equated Monthly Installment)

You take a loan of ₹1,00,000 at 10% p.a. for 1 year. Your EMI = ₹8,792 per month
👉 12 EMIs total = ₹1,05,504

🔸 Case B: Annuity Payment

You invest ₹1,00,000 and expect to receive an annuity at the end of 1 year at 10% return
👉 You’ll receive ₹1,10,000

So the annuity appears higher than 12 EMIs. But that's because:

• EMIs are spread monthly, and interest reduces as principal repays.

• Annuity compounds the full principal till the end.

🧠 Key Differences in Concept:

✅ Summary:

Annuity payment is higher than 12 EMIs because the annuity is based on full principal compounding, while EMI involves reducing balance interest over time.

So you're not comparing the same cash flow mechanics — it's investment return vs. loan repayment structure.