The move basically involves investing funds saved on lower EMIs into SIPs, hoping for returns to outperform the personal loans interest rate. This approach enables borrowers to initiate early repayment on their loans and limit their overall debt. What Is The SIP Prepayment Strategy? This approach generally requires extending the loan tenure to bring down monthly EMIs. Then the difference between the original EMI and the reduced EMI is invested in mutual funds through SIPs. Such an approach generally generates higher returns than the personal loan interest rate. For instance, if the EMI is reduced by ₹10,000 per month, then this amount is routed into SIPs. With consistent investments this way, over time, the SIP corpus grows and builds wealth. These funds are then used later on in prepaying the loan principal faster.   What Are The Advantages & Risks Linked To This Approach? Possibly higher returns: If the equity market performs and the SIP returns surpass loan interest rates, then this strategy can assist in saving funds in the long run. Retention of liquidity: SIP investments are liquid, i.e., can be withdrawn quickly. This is unlike prepaying loans or investing in properties or debt. As all such means lock funds. This is a major advantage of mutual fund investments. Tax benefits: Usually, personal loans don't offer tax deductions. Still, investing on a systematic basis can grow wealth. Later on, the rebate of ₹1.25 lakh can be taken if the mutual fund investments are withdrawn after one year of holding, according to the tax slab. Market risk: The performance of equities, mutual funds, and SIPs primarily depends on market performance. These returns are never guaranteed. They can change rapidly based on the ongoing geopolitical situations.