Loan vs Invested Corpus + SWP Arbitrage Calculator
This calculator evaluates the "loan arbitrage" strategy: you have cash, take a loan anyway, invest the cash, and use Systematic Withdrawal Plan (SWP) to pay the EMI from the investment every month. The calculator simulates this month-by-month to determine if the corpus survives, calculates the break-even return needed, and provides a decision label (Good/Neutral/Bad/Strategic).
A 9% nominal loan has an effective annual cost of 9.38% due to monthly compounding. Therefore, a 9% CAGR investment has a spread of approximately -0.38% before considering tax. This is why loan rate and investment return are not directly comparable.
P = Loan principal amount
r = Monthly loan rate = annual nominal loan rate / 12
n = Loan tenure in months
Each month:
• interest = openingLoanBalance × r
• principal = EMI − interest
• closingLoanBalance = openingLoanBalance − principal
The EMI remains constant, but the interest component reduces over time and the principal component increases.
The principal payment is constant, but the total monthly payment decreases over time as interest reduces.
Only interest is paid for months 1 to n−1. The full principal plus final month's interest is paid in the last month.
Investment return is treated as CAGR (Compound Annual Growth Rate) and converted to monthly effective return.
Timing Assumption:
Investment growth is applied first, then the SWP withdrawal is deducted at month-end.
Each month:
• openingCorpus = previous month's closing corpus
• investmentGain = openingCorpus × monthlyInvestmentReturn
• corpusBeforeWithdrawal = openingCorpus + investmentGain
• grossWithdrawal = required withdrawal (EMI or custom)
• taxPaid = tax payable depending on tax mode
• closingCorpus = corpusBeforeWithdrawal − grossWithdrawal − taxPaid
No tax is applied. This mode shows gross return and gross corpus survival.
⚠️ This is an approximation
Assumes the entire return is taxed every year at the selected tax rate. Does NOT model real SWP taxation, holding period, cost basis, exemptions, or asset-class-specific rules.
Current implementation is a simplified LTCG approximation using a fixed 12.5% rate.
True lot-wise taxation would require:
• Purchase NAV and units tracking
• Cost basis of redeemed units
• Holding period tracking
• STCG/LTCG classification
• Exemption threshold application (e.g., ₹1.25L for equity LTCG)
The minimum gross CAGR required for the corpus to exactly survive until the end of the loan tenure (final corpus ≈ 0).
The result depends on:
• Repayment mode
• Withdrawal timing
• Starting corpus
• Loan rate and tenure
• Tax mode and rate
• Processing/insurance fees
The difference between after-tax investment return and effective annual loan cost.
Good
Corpus survives with spread > 0.5%
Neutral
Corpus survives with spread between 0% and 0.5%
Strategic / Caution
Corpus survives BUT spread is negative. May still be chosen for liquidity, tax benefits, or flexibility, but not mathematically superior.
Bad
Corpus depletes before loan ends
• Loan interest rate is treated as nominal annual rate, compounded monthly
• Investment return is treated as annual CAGR / effective annual return
• Default withdrawal timing is month-end, after monthly investment growth
• Loan rate remains constant throughout the tenure
• Investment return is constant (no volatility simulation)
• No prepayment is assumed unless explicitly enabled
• Tax rates are assumed constant
• Results are approximations for education and planning, not personalized financial advice
This calculator is for educational and informational purposes only. It does not constitute financial advice. Actual results may vary based on market conditions, tax laws, and individual circumstances. Please consult with a qualified financial advisor before making investment or loan decisions.