Question 1

Should I prepay my home loan or invest in SIP?

Accepted Answer

It depends on your loan interest rate, expected SIP returns, and tax situation. If your loan rate is higher than your expected post-tax SIP returns, prepaying is better. This calculator compares both options side by side so you can make an informed decision based on your actual numbers.

Question 2

Does home loan tax benefit matter in this decision?

Accepted Answer

Yes, significantly. Under Section 24(b), you can claim up to Rs 2 lakh deduction on home loan interest. This effectively reduces your loan cost. For someone in the 30% tax bracket, a 9% loan effectively costs ~6.3%. Always factor in tax benefits before deciding to prepay.

Question 3

What SIP return can I expect?

Accepted Answer

Historically, large-cap equity mutual funds have delivered 10-12% CAGR over 10+ year periods, while mid/small-cap funds have delivered 12-15%. However, past returns don't guarantee future performance. A conservative estimate of 10-12% is reasonable for long-term planning.

Question 4

Is it better to reduce tenure or EMI when prepaying?

Accepted Answer

Reducing tenure saves more interest in the long run compared to reducing EMI. When you reduce tenure, you pay off the loan faster and the total interest outgo drops significantly. This calculator assumes tenure reduction, which is the financially optimal choice.

Question 5

What about LTCG tax on mutual funds?

Accepted Answer

Long-term capital gains (LTCG) on equity mutual funds above Rs 1.25 lakh per year are taxed at 12.5%. This reduces your effective SIP returns. The calculator factors in post-tax returns to give you a realistic comparison against loan prepayment.

Question 6

Can I do both prepay and SIP?

Accepted Answer

Absolutely. A balanced approach often works best. You can prepay a portion to reduce your loan burden and invest the rest in SIPs for wealth creation. Use this calculator to find the breakeven point and then allocate your surplus accordingly.

Metric	Prepay Loan	Invest in SIP
Total Benefit	₹10,06,961	₹22,01,288
Interest Saved / Returns Earned	₹10,06,961	₹24,97,901
Effective Annual Return	13.4%	29.4%
Tenure Reduction	51 months	—
Maturity Value	—	₹29,97,901

Loan Details

Lump Sum & SIP

Tax Settings

Prepay Loan

Invest in SIP

Benefit Comparison

Detailed Comparison

Frequently Asked Questions