In today’s fast-changing Indian economy, choosing between prepaying a home loan and investing in a Systematic Investment Plan (SIP) can be a defining financial decision. Let’s explore a real-life story from Bhilai, Chhattisgarh, to understand the pros and cons of each approach in 2025..
The Real-Life Case of Rohit
Rohit, a 33-year-old civil engineer from Bhilai, purchased a 2 BHK apartment in 2022, financed by a ₹50 lakh home loan at 8% interest. His current EMI stands at ₹38,591 per month for a 25-year tenure.
With recent project bonuses and salary hikes, Rohit now has a monthly surplus of ₹25,000.
His question:
Should he use this surplus to prepay his home loan or invest in mutual funds via SIP?
Scenario 1: Early Loan Repayment
If Rohit increases his EMI to ₹63,591. Instead of 22 years remaining, the loan will be cleared in just 8.75 years (approx. 8 years and 9 months) from that point., he can potentially close the loan in 13 years instead of 25.
Rohit saves approximately ₹35.1 lakhs in interest over the full loan tenure.
Scenario 2: Investing Surplus in SIPs
Rohit could invest the ₹25,000 surplus into equity mutual funds via SIP, expecting a conservative 12.5% annual return.
Over the same 22 years, his SIPs could grow to ₹3.5 Crores (₹3,49,72,629)
Meanwhile, he continues enjoying tax benefits on his loan interest, enhancing overall wealth efficiency.
Comparative Analysis
| Category | Prepay Loan | SIP Investment |
|---|---|---|
|
Loan Tenure Remaining |
₹8.75 years |
₹22 years |
|
Total Interest Paid |
₹30.6 lakhs |
₹65.7 lakhs |
|
Interest Saved |
₹35.1 lakhs |
0 |
|
Future Value (Wealth Created) |
Low |
₹3.5 crores |
Based on projections, SIP investments clearly offer higher long-term value, assuming stable market performance.
Factors to Consider.
1. Risk Appetite
If Rohit is conservative and prefers guaranteed returns, early loan repayment may offer peace of mind. SIPs involve market risk.
2. Liquidity Needs
SIPs are flexible and can be paused, increased, or redeemed anytime—something a home loan EMI doesn’t allow.
3. Debt-Free Emotion
Many Indians value the emotional freedom of being debt-free. If that’s a key driver for Rohit, prepayment might be fulfilling.
Conclusion :
For Rohit in Bhilai, SIPs provide significantly better financial upside in the long term—provided he is comfortable with market risks. However, if his goal is peace of mind through early debt clearance, prepaying the loan could still be a valid choice.
Disclaimer :
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
