Home Loan Overdraft (MaxGain) vs Equity SIP: The Smart Strategy
Understand how parking surplus funds in home loan overdraft generates risk-free 8.75% tax-free savings with complete liquidity.
Home Loan Overdraft (MaxGain) vs Equity SIP
8.75% Guaranteed Tax-Free Savings vs 12% Market Equity SIP
“I have ₹10 Lakhs in savings. Should I prepay my 8.75% SBI Home Loan or invest it into an equity mutual fund SIP?”
“Aman, park your surplus in an SBI MaxGain Home Loan Overdraft account! As long as the balance sits there, you pay ZERO interest on that portion.”
“Equity mutual funds delivering 12% yield approx ~10.5% post 12.5% LTCG tax. Saving 8.75% home loan interest is completely risk-free and tax-free!”
“Brilliant! I will park my emergency buffer in the home loan overdraft to slash 7 years off my loan, and continue monthly SIP with the rest!”
Live Simulator: Prepayment vs SIP Comparison
Enter your loan amount, interest rate, and monthly surplus to test the numbers.
SIP generates ₹22.01 L MORE Wealth!
Investing surplus in a 12% equity SIP yields ₹22,00,745 MORE post-tax wealth than prepaying an 8.5% home loan.
Loan & Investment Parameters
Year-by-Year Loan Amortization & Wealth Accumulation Schedule
| Year | Standard Loan Balance | Prepaid Loan Balance | SIP Investment Corpus | Wealth Leader |
|---|---|---|---|---|
| Year 1 | ₹49.00 L | ₹47.76 L | ₹1.28 L | SIP (+₹1.28 L) |
| Year 2 | ₹47.92 L | ₹45.32 L | ₹2.72 L | SIP (+₹2.72 L) |
| Year 3 | ₹46.74 L | ₹42.66 L | ₹4.35 L | SIP (+₹4.35 L) |
| Year 4 | ₹45.46 L | ₹39.77 L | ₹6.18 L | SIP (+₹6.18 L) |
| Year 5 | ₹44.06 L | ₹36.62 L | ₹8.25 L | SIP (+₹8.25 L) |
| Year 6 | ₹42.54 L | ₹33.19 L | ₹10.58 L | SIP (+₹10.58 L) |
| Year 7 | ₹40.89 L | ₹29.47 L | ₹13.20 L | SIP (+₹13.20 L) |
| Year 8 | ₹39.09 L | ₹25.41 L | ₹16.15 L | SIP (+₹16.15 L) |
| Year 9 | ₹37.13 L | ₹20.99 L | ₹19.48 L | SIP (+₹19.48 L) |
| Year 10 | ₹35.00 L | ₹16.18 L | ₹23.23 L | SIP (+₹23.23 L) |
| Year 11 | ₹32.68 L | ₹10.95 L | ₹27.46 L | SIP (+₹27.46 L) |
| Year 12 | ₹30.15 L | ₹5.26 L | ₹32.23 L | SIP (+₹32.23 L) |
| Year 13 | ₹27.40 L | 🎉 Loan Paid Off! | ₹37.59 L | SIP (+₹37.05 L) |
| Year 14 | ₹24.41 L | 🎉 Loan Paid Off! | ₹43.64 L | SIP (+₹36.20 L) |
| Year 15 | ₹21.15 L | 🎉 Loan Paid Off! | ₹50.46 L | SIP (+₹35.23 L) |
| Year 16 | ₹17.60 L | 🎉 Loan Paid Off! | ₹58.14 L | SIP (+₹34.14 L) |
| Year 17 | ₹13.75 L | 🎉 Loan Paid Off! | ₹66.79 L | SIP (+₹32.91 L) |
| Year 18 | ₹9.55 L | 🎉 Loan Paid Off! | ₹76.54 L | SIP (+₹31.52 L) |
| Year 19 | ₹4.98 L | 🎉 Loan Paid Off! | ₹87.53 L | SIP (+₹29.96 L) |
| Year 20 | ₹101 | 🎉 Loan Paid Off! | ₹99.91 L | SIP (+₹28.21 L) |
Net Wealth Trajectory Over Time (Prepayment vs SIP)
Comparing accumulated financial wealth between early prepayment + post-loan SIP vs continuous mutual fund compounding.
Prepayment vs Mutual Fund SIP: Decision Framework
When to Choose Home Loan Prepayment
- High Interest Rate: If loan interest rate is above 9.0%–9.5% p.a.
- Risk Aversion: You prefer guaranteed, risk-free savings over market volatility.
- Peace of Mind: Emotional satisfaction and mental relief of being 100% debt-free.
- Job Volatility: If income is uncertain, eliminating fixed monthly EMIs reduces stress.
When to Choose Mutual Fund SIP
- Return Spread: Equity returns (12–14%) comfortably beat home loan rates (8.5%).
- Liquidity: Mutual fund investments can be partially redeemed in emergencies.
- Power of Compounding: Money invested early has 15–20 years of compounding growth.
- Tax Exemptions: You claim home loan interest deductions under Section 24b.
Frequently Asked Questions (FAQs)
Prepay or invest, with your numbers
Prepaying earns a guaranteed return equal to your loan rate and is tax-free. The SIP has to beat that rate after 12.5% LTCG to win, and it carries market risk while the saving does not. Both sides here are compared after tax, which is the only fair way to read the gap.