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Banking & LoansDecision Battle

Prepay Loan vs. Invest in SIP

Compare the mathematical advantage of prepaying your home loan vs investing surplus cash in an equity mutual fund SIP.

  • Runs entirely in your browser
  • No sign-up, nothing stored
  • Formula explained below

Your loan and surplus

Adjust the sliders or type exact values.

Home loan
₹
₹2L₹1.5Cr
%
6%15%
yrs
5 yrs30 yrs
Monthly surplus

Spare cash each month, on top of your EMI.

₹
₹1K₹50K
%
8%18%
Over 20 years, investing in a SIP leaves you ahead by
₹26,51,770

Calculated across the full 20-year horizon, with the EMI and surplus invested once the prepaid loan closes. Both paths spend the same ₹44,713 a month.

Prepay first: final wealth
₹73,39,709
Invest in SIP: final corpus
₹99,91,479
Interest saved by prepaying
₹19,69,555

Net position over time

Investments minus the loan still owed, at the end of each year. Both paths are debt-free by year 20.

  • Prepay first
  • Invest in SIP
Investing wins as long as your SIP earns more than 8.4% a year
Prepaying earns a guaranteed return equal to your 8.5% loan rate. Equity SIP returns are not guaranteed, so leave a margin above the break-even before choosing to invest.

Strategy A: Prepay loan

Loan closes in8.1 years early
11.9 yrs
Interest saved
+₹19,69,555
Then invests each monthEMI + surplus, for the last 97 months
₹44,713
Net terminal wealth
₹73,39,709

Strategy B: Invest surplus in SIP

Better outcome
Loan closes inRegular schedule
20 yrs
Interest paid on loanFull interest on the regular EMI
₹43,31,103
SIP invested₹10,000 a month for 240 months
₹24,00,000
SIP terminal corpus
₹99,91,479

Which strategy wins at other SIP returns

Difference in final wealth after 20 years. Bars above zero favour investing; below zero favour prepaying.

  • SIP ahead by
  • Prepaying ahead by

Which strategy should you choose in real life?

Models often show equity SIPs beating home loan prepayment, because expected equity returns (around 12%) exceed home loan rates (around 8.5%). The value of being completely debt-free does not show up in a spreadsheet.

FV = P × [ (1 + i)ⁿ − 1 ] ÷ i × (1 + i)
FV
Value of the SIP at the end of the tenure
P
Monthly SIP: the surplus (B), or EMI + surplus once the loan is closed (A)
i
Monthly return = SIP return ÷ 12 ÷ 100
n
Months invested

The 50:50 rule. If you have an extra ₹10,000 a month, put ₹5,000 towards prepaying the home loan and invest ₹5,000 in an index fund SIP. You get earlier debt freedom and long-term compounding. Model each half with the loan prepayment calculator and the SIP calculator.

Why does the prepay strategy invest after the loan closes?
To compare like with like. Both strategies spend the same amount every month (EMI plus surplus) for the same number of years. Once the prepaid loan is closed, that whole amount goes into a SIP for the remaining months.
Is the SIP return guaranteed?
No. Prepaying earns a guaranteed return equal to your loan rate. Equity returns vary and can be negative over short periods, so the SIP result is an estimate.
Does this include tax?
No. If you claim the home loan interest deduction under the old tax regime, your effective loan rate is lower, which tilts the result further towards investing. Gains on equity funds are taxed when you redeem.

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Calculate total interest saved and tenure reduction through extra monthly or yearly loan prepayments.