EMI vs SIP : Finding the Financial Sweet Spot

With rising home loan interest rates and evolving tax rules, many individuals face a critical choice- should surplus funds go toward prepaying their loan or building long-term wealth through SIPs? This piece compares both strategies across scenarios, helping you make an informed decision based on savings, returns, risk, and time horizon

- 

Sanjay Mahajan sat at his dining table, laptop open, two tabs side by side—one showing an online SIP calculator, the other his home loan amortisation schedule. His wife passed him a cup of tea, but he barely noticed. The numbers just wouldn't line up. 'Should I throw this year's bonus at the prepayment of home loan, increase the EMI a bit off the raise he got, or finally start that SIP I've been putting off?' he muttered, more to himself than anyone else. The idea of being debt-free faster was tempting. But so was the possibility of compounding returns if he invested instead. He'd read a dozen articles, watched YouTube videos, even asked his banker friend—only to end up more confused than ever. Like many Indians juggling aspirations, Excel sheets, and WhatsApp forwards full of financial wisdom, Sanjay was stuck. The idea of knocking years off his loan was appealing. So was the vision of sipping margaritas someday, funded by mutual fund returns.

For millions of Indians, a home loan is the bridge between aspiration and ownership—but it comes at a steep cost, not just in principal but also in interest. With current home loan interest rates ranging between 7.25 per cent and 9.5 per cent (as of July 2025) and property prices continuing to rise, borrowers today face a crucial financial decision: Should they prepay the loan, increase their equated monthly instalments (EMI) to reduce the tenure, or channel surplus funds into mutual funds via systematic investment plans (SIPs) to build long-term wealth? This question has become even more relevant with the new tax regime, where home loan interest is no longer eligible for deduction, and the exemption limit of tax has been raised to ₹12 lakh. The tax benefits that once justified holding on to a home loan have significantly diminished for those opting for the new regime. As a result, the decision is now more straightforward—but no less significant.