Prepay loan or invest
Compare prepaying a loan with investing the same money in a SIP.
Your inputs
Advanced settings
12.5% LTCG + 4% cess = 13%.
How the yearly return is applied
Most apps divide the yearly return by 12, which shows about 3.5% more over 10 years. We use the effective rate by default, so 12% means 12% a year.
Payment timing
Results
Generated on 11 Oct 2026
Your inputs
| Loan outstanding | ₹40,00,000 |
|---|---|
| Interest rate (per year) | 8.5% |
| Remaining tenure | 20 years |
| Spare money every month | ₹10,000 |
| Expected return (per year) | 12% |
| Tax on investment gains | 13% |
| Tax-free gains | ₹1,25,000 |
| How the yearly return is applied | Effective (12% = 12% a year) |
| Payment timing | Start of month |
Invest the surplus leaves you more by
₹14,70,757
post-tax wealth at the original loan end date
- Monthly EMI
- ₹34,713
- Wealth if you prepay
- ₹68,60,252
- Wealth if you invest
- ₹83,31,009
Prepay the loan
- Interest saved
- ₹19,69,555
- Loan closes in
- 11 years 11 months
- Invested after the loan closes
- ₹43,69,555
- Value after tax
- ₹68,60,252
Invest the surplusMore wealth
- Total interest
- ₹43,31,103
- Amount invested
- ₹24,00,000
- Estimated tax and exit load
- ₹8,67,565
- Value after tax
- ₹83,31,009
See how a different amount, return or period changes the result, side by side.
Assumptions and method
Formula
- Both paths spend EMI + surplus every month until the original loan end
- Prepay: surplus prepays monthly; after closure EMI + surplus goes into a SIP
- Post-tax = value − max(0, gain − exemption) × tax rate
Conventions used
- Monthly rate: i = (1 + r)^(1/12) − 1 (Effective (12% = 12% a year))
- Money moves at the start of each month, so an instalment earns that month's return.
Modelling notes
- Both options spend EMI + surplus every month until the original loan end date.
- Prepay: surplus prepays the loan monthly; once closed, EMI + surplus goes into a SIP.
- Investment gains taxed at 13.00% above ₹125000 (single redemption at the end).
- Home-loan tax deductions are not modelled.
Not included
- Home-loan tax deductions (Section 24(b), 80C), which favour keeping the loan.
- Market ups and downs: the same return is assumed every month.
This is an illustration based on the return you entered. Actual returns vary and may be lower or negative.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
How it works
Have spare money every month and a loan running? You can prepay the loan or invest the surplus in a SIP. Both paths spend the same EMI + surplus every month until the original loan end date; we compare your wealth at that date, after tax on investment gains.
If you prepay, the loan closes early and from then on the EMI plus surplus goes into a SIP.
Frequently asked questions
Which is better?
It depends on whether the after-tax investment return beats the loan rate, and on how you feel about risk. A loan rate is certain; investment returns are not.
Are home-loan tax deductions included?
No. Section 24(b) and 80C deductions are not modelled; they favour keeping the loan.