Loan vs SIP CalculatorShould you invest your surplus or repay your home loan?
You have a monthly surplus. You can either invest it in equity via SIP and build long-term wealth, or channel it as an extra principal payment on your home loan and save guaranteed interest. This calculator puts hard numbers on both paths.
Your Loan & Surplus Details
Decision Results
Winner
📈 Invest in SIP
Better by ₹77.97 L over 15 years
Option A — Prepay Loan
₹22.95 L
Interest saved (guaranteed)
Total prepayments: ₹36.00 L
Loan interest total: ₹38.63 L
Option B — Invest in SIP
₹1.01 Cr
SIP corpus built
Total invested: ₹36.00 L
Net gains: ₹64.92 L
Monthly Surplus
₹20,000
Goes into SIP or prepayment
Break-even Rate
8.5%
SIP must beat this to win
SIP vs Loan Gap
+₹77.97 L
SIP advantage
The decision framework — math meets behavior
The mathematical rule is straightforward: if expected SIP return > loan interest rate, invest. If loan rate > expected return, prepay. But this pure math ignores several critical factors that shift the real-world answer.
Why home loans are a special case
- Tax deduction (old regime): Under Section 24(b), interest up to ₹2 lakh/year is deductible. At 30% slab, this reduces the effective loan rate from 8.5% to roughly 6–6.5% — making SIP more attractive.
- No prepayment penalty: RBI prohibits prepayment charges on floating-rate home loans to individuals. This makes prepayment a pure financial decision with no transaction cost.
- Principal in 80C: Up to ₹1.5 lakh of home loan principal repayment counts toward 80C. If your 80C is already maxed by EPF/ELSS, this benefit is zero — raising the effective loan cost.
When prepayment clearly wins
- Loan rate is above 9.5% (and you don't benefit from Section 24 deduction under new tax regime)
- You are within 8 years of loan start — amortisation is interest-heavy, so every rupee prepaid saves the most interest
- Your risk tolerance is low and market volatility keeps you awake at night
- You are approaching retirement and want to be debt-free before your income stops
When SIP clearly wins
- Loan rate is below 8.5% and you claim Section 24 deduction (effective rate below 6%)
- Investment horizon is 15+ years — equity compounding significantly outperforms over long periods
- You are disciplined and won't panic-sell during market corrections
- Your employer offers NPS matching or you can add ELSS SIPs for additional 80C benefit
Neha, 34 — Marketing Manager in Mumbai
Neha has an outstanding home loan of ₹50 lakhs at 8.5% with 15 years remaining. Her EMI is approximately ₹49,200/month. She just received a salary increment and now has ₹20,000/month surplus. She is deciding whether to park this in an equity SIP (expected 12% return) or make monthly prepayments on her loan. She is in the 30% tax bracket and claims Section 24 deduction.
Invest ₹20K in SIP (12%)
~₹1.00 Cr
SIP corpus over 15 years
Prepay ₹20K/month (8.5%)
~₹27 L
Interest saved (estimated)
SIP advantage
~₹73 L
SIP corpus minus interest saved
What Neha learns: at 8.5% loan rate with Section 24 benefit reducing effective cost to ~6%, and an expected 12% SIP return, the math clearly favours SIP by a wide margin. However, Neha is also nervous about potential job instability in her industry. Her final decision: ₹14,000 to SIP (70%) and ₹6,000 as prepayment (30%). This way she builds a significant equity corpus while also reducing her loan tenure by about 4 years — getting both the math and the peace of mind.
When to Choose SIP vs When to Prepay
The answer changes with your loan rate, tax regime, career stage, and risk appetite. Use these decision points to land on the right framework before running the numbers.
Choose SIP when your loan rate is below 9% (old regime)
With Section 24 interest deduction on home loans capping at ₹2 L/year, a 30% slab taxpayer sees their effective 8.5% loan cost drop to roughly 6%. Equity SIP returning 10–12% comfortably outperforms. The longer the horizon, the more the compounding gap widens in SIP's favour.
Prepay when under the new tax regime (no deductions)
If you have opted for the new income-tax regime, you lose both Section 24(b) interest deduction and 80C principal benefit. Your effective home loan cost is the full 8.5–9%. At that level, prepayment becomes more competitive — especially if your SIP return expectation is conservative (9–10%).
Prepay aggressively in the first 7 years of any loan
Loan amortisation is front-loaded with interest. In the first 7 years of a 20-year home loan, over 60% of every EMI goes to interest. Prepaying ₹1 L in year 3 saves nearly ₹2.5 L over the remaining tenure. After year 10, the maths flips and SIP's compounding advantage grows.
Consider the behavioral factor honestly
If you lose sleep over a large EMI, or if debt makes you risk-averse and you might stop SIPs at the first market correction, the psychological "return" of becoming debt-free has real value. A plan you stick to beats a mathematically optimal plan you abandon.
The 70-30 split is the smart middle path
Put 70% of your surplus into SIP and 30% as prepayment. You capture most of the equity compounding upside, reduce your loan tenure by several years, and retain liquidity in the SIP corpus for emergencies. Most personal finance advisors converge on this hybrid approach for home loans at 8–9%.
Loan vs SIP Calculator FAQ
QWhat is the break-even rate between SIP and home loan prepayment?
Mathematically, the break-even is your effective post-tax home loan rate. For a 30% slab taxpayer claiming Section 24 deduction on an 8.5% loan, the effective rate is roughly 6.5%. Any SIP expected to return above 6.5% is mathematically superior to prepayment. Under the new tax regime, the break-even equals the full loan rate (8.5%), making it a tighter call.
QDoes it matter when in the loan tenure I start prepaying?
Enormously. Home loans use a reducing balance method with front-loaded interest. A ₹1 lakh prepayment in year 2 of a 20-year loan saves roughly ₹2.8 lakh in total interest. The same prepayment in year 15 saves only about ₹40,000. If you want to prepay, do it early. If you are past year 10, SIP almost always makes more sense.
QShould I reduce my EMI or shorten my loan tenure when prepaying?
Always shorten the tenure, not the EMI. Keeping the EMI constant means more of each future payment goes to principal, and you save far more interest. Reducing EMI feels good monthly but extends your exposure to interest for longer. The financial literature is unanimous on this point.
QHow does the new tax regime change the loan vs SIP calculation?
Under the new regime, you cannot claim Section 24(b) deduction (₹2 L/year interest) or 80C principal repayment benefit. This raises the effective home loan cost to the full headline rate — often 8.5–9%. The higher the effective rate, the more attractive prepayment becomes versus SIP. Re-run this calculator with your actual effective rate.
QWhat if my SIP underperforms due to a market downturn?
SIP returns are probabilistic, not guaranteed. Loan interest savings are certain. To account for this uncertainty, use conservative return expectations (10% not 14%) in the calculator. Also ensure you have a 6-month emergency fund before starting either SIP or prepayment — so a short-term income disruption won't force you to break SIPs or stop prepayments at the worst time.
QCan I do both SIP and prepayment simultaneously?
Yes, and this is what most advisors recommend. A typical split is 60–70% of surplus to SIP and 30–40% to prepayment. This hybrid approach captures most of the equity compounding upside, meaningfully reduces your loan tenure (often by 4–7 years), and keeps some corpus liquid for opportunities or emergencies. The calculator shows the single-path comparison; in practice, the blend often beats both extremes.
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