Loan Prepayment vs SIP Calculator
Quantitative decision engine to resolve personal finance's biggest dilemma: should you prepay your home loan or invest that surplus in an equity SIP?
Loan & Surplus Parameters
Strategic Verdict
Invest in Equity SIP
Investing surplus in a 12% equity SIP creates approximately ₹31.65 Lakhs in net post-tax alpha over loan prepayment.
Option A: Prepay Loan
₹₹13,29,495.81 Interest Saved
Reduces tenure by 81 months (~6.8 yrs)
Option B: Invest in 12% SIP
₹₹71,94,434.99 Net Wealth
Post-tax equity corpus (after 12.5% Section 112A LTCG tax)
Net Financial Advantage:
₹₹31,64,939.19 net alpha in favor of Equity SIP!
Arbitrage Net Wealth Differential
All calculations on InvestResearch India execute with 28-digit precision arithmetic via decimal.js, eliminating floating-point drift and adhering to statutory regulatory conventions.
Example: ₹1,00,000 Annual Surplus with 8.5% Home Loan vs 12.5% Equity Mutual Fund SIP over 15 Years
Surplus: ₹1,00,000/year (₹8,333/month) | Home Loan Rate: 8.5% | Equity SIP CAGR: 12.5% | Horizon: 15 Years
1. Option A (Prepay Loan): Saves ~₹16,40,000 in interest over 15 years 2. Option B (Invest in Equity SIP): - Invested Capital: ₹15,00,000 - Final Corpus: ₹43,97,000 - Post-Tax Wealth (after 12.5% LTCG): ~₹40,35,000 3. Net Wealth Arbitrage Surplus: ₹40,35,000 - (₹15,00,000 + ₹16,40,000) = ₹8,95,000 ahead
Statutory Tax Framework (Union Budget FY 2026–27)
If you are claiming Section 24(b) interest deduction under the Old Tax Regime, your effective loan cost is lower by your tax slab (e.g. 8.5% becomes ~5.95% effective cost for 30% slab earners), strengthening the case for equity SIPs.
Frequently Asked Questions
What is the psychological advantage of loan prepayment over SIP?
While mathematics favors equity SIPs when expected returns (12%) exceed loan rates (8.5%), loan prepayment delivers deterministic interest cost savings equal to your borrowing rate, eliminating debt anxiety and freeing up monthly cash flow.
What is the ideal blended strategy between loan prepayment and SIP?
Many financial planners recommend a 50:50 allocation: allocate 50% of your annual surplus (bonus) to prepay home loan principal, and 50% toward an equity mutual fund SIP. This reduces debt systematically while letting compounding run.