Prepay vs SIP
The question every borrower with spare cash asks. Take a running loan and a monthly surplus, run both strategies over the same horizon on a real amortisation schedule, and read which one leaves you worth more — along with the SIP return above which investing starts to win.
Loan
Surplus & investment
Tax adjustment
One effective rate each, kept deliberately simple: the LTCG rate is applied to the SIP gain at the horizon, and the relief rate to the loan interest paid along the way, credited back as cash. Real Section 24 and 80C limits are capped and depend on your slab and on whether the property is let out — treat this as a direction, not a tax computation.
Strategy
Invest the freed EMI
Strategy by strategy
Net worth over time
Year by year
Inv = invest · Pre = prepay| Yr | Inv · SIP | Inv · loan | Inv · net | Pre · loan | Pre · SIP | Pre · net |
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The two strategies are handed the same money every month — the EMI plus that month’s surplus — and whatever the loan does not take is invested, which is the only way the two net worth figures mean the same thing. That is also why the break-even return lands on the loan rate when the tax adjustment is off: rupee for rupee, a prepayment earns exactly the rate you are being charged. What it does not capture is risk. A prepayment’s return is guaranteed and a SIP’s is not, so beating the break-even by a point or two is not the same as being better off — the equity return assumed here is an average a real portfolio only visits on its way past. Prepaid money is also gone: it cannot be withdrawn in an emergency, while a SIP can, and most borrowers should fill an emergency fund before doing either. One constant return, compounded monthly, stands in for a market that returns something different every year. An illustration, not advice.