Approximate return before growth tax where investing and prepaying end with equal net assets in the no-setback case, after the 20% tax-drag assumption. Above it, investing has the higher modelled ending value; below it, prepaying does.
SIP GUIDE / MONEY DECISION LAB
EMI vs SIP: prepay or invest?
See the trade-offs together.
Rehearse a money decision before you commit. Compare four plans, test a difficult year and take away a decision brief.
EMI VS SIP · START WITH THE RATES
Prepayment has the higher modelled rate.
- Quoted annual loan rate
- 8.00%
- Effective annual loan cost
- 8.30%
- Assumed post-tax investment return
- 8.00%
On rates alone, prepaying has an advantage when the loan cost exceeds the expected post-tax investment return. Investment returns can vary; the interest avoided depends on the loan and repayment terms. The full comparison below also includes prepayment fees, cash needs and timing.
10% × (1 − 20% tax drag) = 8.00%. Effective loan cost = (1 + quoted rate ÷ 12)12 − 1, with rates expressed as decimals. Loan tax benefits are excluded.
This is an illustration, not a promised or guaranteed return.
Discuss this illustration →ONE BUDGET. FOUR POSSIBLE PATHS.
What changes when your money
has a different job?
Every plan starts with the same money. When a loan ends, its freed EMI is invested in every plan. This view shows no setback.
Financial position over time
Cash + investments − loan₹15.0L−₹14.2L−₹43.5L
TodayYear 5Year 10
Home value is excluded because it is common to all plans. A negative figure means the loan exceeds the financial assets modelled here. A plan with unmet outgo stops; it is not projected as if funded.
Cash remaining for “Invest” after 10 years. Prepaid principal cannot be treated as cash available for an emergency.
“Prepay the loan” has the highest ending position among completed scenarios under these inputs. That does not decide suitability: access to cash, uncertainty, lender terms and your ability to stay invested matter too.
SIP Guide — decision brief
SIP GUIDE — MONEY DECISION BRIEF Comparison: 10 years. Scenario: No setback. Plan to discuss: Invest the surplus. Loan balance ₹50,00,000; rate 8% p.a.; remaining term 240 months; modelled EMI ₹41,822. Monthly extra ₹20,000; available lump sum ₹2,00,000; existing cash ₹1,50,000; accessible investments ₹3,00,000. Living expenses ₹40,000/month excluding this loan; reserve target 6 months. Assumptions: investment return before growth tax 10% p.a.; effective tax drag 20%; modelled post-tax return 8%; cash return 3%; expense inflation 5%; prepayment fee 0%; split 50% to investments. Setback settings: start year 2; income interruption 6 months; remaining income ₹0/month; investment fall 25%; unexpected out-of-pocket bill ₹1,50,000; loan rate increase 2 percentage points in combined scenario. PLAN COMPARISON (cash + investments − remaining loan; home value excluded): Invest: ending position ₹14,36,504; cash ₹2,01,587; loan ₹34,47,031; payoff Beyond 10 years. Prepay: ending position ₹15,04,369; cash ₹2,01,587; loan ₹0; payoff 9y 2m. Split: ending position ₹14,70,793; cash ₹2,01,587; loan ₹13,95,607; payoff Beyond 10 years. Buffer first: ending position ₹11,64,813; cash ₹6,57,353; loan ₹34,47,031; payoff Beyond 10 years. Questions: What level of accessible reserve fits my income risk? What are my actual lender's prepayment terms? Which assumptions would change this decision? How do my existing insurance terms affect an out-of-pocket shock? This is an illustration, not a promised or guaranteed return. Educational comparison only. The effective annual tax drag is a simplified assumption, not a capital-gains tax computation. Loan tax benefits, exit loads, penalties and product restrictions are excluded. No policy or investment is selected.
What this comparison includes
Equal budgets. The model uses your entered starting cash, investments and lump sum. In normal months, each plan receives the calculated EMI plus your extra contribution. Freed EMI is invested after payoff. Prepayment fees reduce the amount of principal that can be repaid from the same extra budget. Your fixed monthly extra assumes it stays affordable as living costs change.
Four allocation rules. Invest puts extra money into investments. Prepay directs it to principal, then invests any remainder after the loan ends. Split follows your chosen percentage. Buffer first fills the selected months of expenses plus EMI before investing the rest; its target updates with expense inflation.
Setback timing. A market fall applies once before that month’s investment growth and withdrawals. Loan interest accrues monthly at annual rate ÷ 12. Investment and cash assumptions are effective annual rates converted monthly. Regular payments and additions occur at month end. Income interruptions pause extra contributions; remaining income offsets essential outgo only.
Limits. Only the stated annual investment-growth tax drag is modelled. Actual capital-gains taxes, loan-interest tax benefits, exit loads, lending restrictions, missed-payment penalties or insurance reimbursements are not calculated. If accessible assets cannot meet outgo, the simulation stops rather than assuming new borrowing. The home, locked savings and other assets are excluded. No products are recommended. Verify lender terms and personal circumstances before acting.
Questions about prepaying versus investing
Compare the loan's effective annual cost with the investment return after the stated tax and cost assumptions. Prepayment has a rate advantage when that loan cost is higher. Liquidity, uncertainty, lender charges and loan tax benefits can change the decision; the tool does not select a product or strategy for you.
A user-selected effective tax drag reduces positive annual investment growth. Losses receive no tax credit. This simplified approach does not calculate capital-gains tax lots, exemptions or the timing of redemptions.
Yes. Each path starts with the same money and regular surplus. Once a loan ends, the freed scheduled EMI is invested. The monthly ledger shows the flows, fees and remaining loan.
Yes. Prepaid principal is not an accessible emergency reserve, and investments can fall. Use the income-interruption and market-fall scenarios to explore cash needs before making a decision.