Loan Arbitrage Simulator
Compare the loan cost and investment balances when EMIs are paid from income or regular withdrawals.
Loan Details
Fifty Lakh Rupees
Eight Percent
Fifteen
Investment Assumptions
Fifty Lakh Rupees
Twelve Percent
Seven Percent
Zero Percent
Advanced Strategy Controls
Based on Your Inputs, A Workable SWP Scenario Is:
Summary of your current inputs with back-calculated optimal values
Loan Amount
₹50,00,000
Total loan to be repaid
Monthly EMI
₹49,237
Fixed monthly payment
Monthly SWP Withdrawal
₹49,237
Amount to withdraw monthly to cover EMI
Initial Investment Needed
₹84,40,625
Lump sum to invest upfront
At 7% withdrawal rate and 12% expected ROI
Loan Tenure
15 Years
Duration of loan repayment
Final Corpus
₹2,41,73,829
Investment value after loan is fully repaid
This scenario is based on your current inputs. Adjust the values above to explore different scenarios.
AI Strategic Insights
- • Positive Arbitrage: Your expected return (12%) is higher than your loan rate (8.5%). Investing the lump sum yields better net wealth.
- • Success: Strategy C fully covers your EMIs and leaves you with a surplus investment balance of 4,370,850 at the end of the loan tenure.
- • Strategy B (Invest Only, pay EMI out of pocket) generates more final wealth than Strategy C because your investment compounds entirely untouched.
Execution Analysis
Recommended Approach
Invest & Pay Pocket (Strategy B) yields highest wealth
Mathematically, choosing Invest & Pay Pocket (Strategy B) maximizes your net wealth at the end of the tenure.
To sustain a 7% withdrawal rate safely.
Calculation: ₹5,90,844 (Annual) ÷ 7%
After 15 years of consistent withdrawals.
Over entire tenure
Invest lump sum, pay EMI from pocket
Principal: ₹50.00 L + Interest: ₹38.63 L
Net Wealth Comparison (Over Time)
Strategy C: Loan Balance vs Investment Balance
Annual Cash Flow: EMI vs SWP Withdrawals
Detailed Year-by-Year Breakdown (Strategy C)
Track your exact portfolio corpus, growth, and withdrawals against the loan balance.
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Loan Arbitrage Deep Dive
What this calculator compares
This calculator models an outstanding loan alongside a lump sum that could remain invested. It compares a loan-only baseline, an untouched investment with EMIs paid from income, and an investment used to fund EMIs through regular withdrawals.
These scenarios use different external cash flows. A higher ending investment balance is not automatically a better result from the same money.
Why the strategy is not risk free
The loan repayment obligation remains even when investments lose value. An assumed investment return above the loan rate does not create a guaranteed gain.
The name loan arbitrage describes the comparison on this page. It is not a promise of risk-free arbitrage or a recommendation to borrow for investing.
The three strategies
| Strategy | Investment treatment | EMI funding |
|---|---|---|
| A standard repayment | No investment corpus modelled | Outside income or cash |
| B invest and leave untouched | Lump sum compounds | Outside income or cash |
| C invest and withdraw | Lump sum reduced by SWP | Investment withdrawals, with outside cash for any shortfall |
Strategy A is a loan-cost baseline. It does not model a lump-sum prepayment or foreclosure. For that direct question, use the Payoff Loan vs Invest Calculator.
Strategy B requires the entire EMI to be funded separately. Strategy C uses the investment to fund some or all of it. Compare the source and total amount of those payments as well as the ending corpus.
How the Calculation Works
Loan EMI
EMI = P × r × (1 + r)n ÷ [(1 + r)n − 1]
P is outstanding principal, r is the annual loan percentage divided by 100 and 12, and n is the remaining months. At zero interest the mathematical EMI is P ÷ n. The entered loan rate remains fixed in the projection.
Investment growth and withdrawals
The main projection subtracts the entered expense ratio from the assumed annual investment return, then divides the net rate by 12.
Strategy B: Closing corpus = Opening corpus × (1 + monthly rate).
Strategy C: Closing corpus = Opening corpus × (1 + monthly rate) − monthly withdrawal.
Here withdrawals occur after monthly growth. This differs from the month-start withdrawal convention on the separate SWP Calculator page. A partly funded withdrawal creates a shortfall; it does not cancel the loan EMI.
If your return assumption already reflects a fund's ongoing expense ratio, entering that cost again can double-count it. Taxes and exit loads are not included.
What the withdrawal rate means
Reference corpus = Annual planned withdrawal ÷ withdrawal rate as a decimal.
A ₹6 lakh annual withdrawal at a 7% reference rate gives ₹85.71 lakh. This is a ratio-based reference, not an exact capital requirement or a guarantee of survival. When SWP equals EMI, the EMI sets the monthly withdrawal.
A worked loan and investment example
Assume a ₹50 lakh outstanding loan at 8.5% for 15 years, a ₹50 lakh investment, a 12% investment return input and a 0.5% annual expense input. Set the monthly SWP equal to EMI.
| Result | Modelled amount |
|---|---|
| Monthly EMI | ₹49,237 |
| Total loan repayment | ₹88.63 lakh |
| Total loan interest | ₹38.63 lakh |
| Strategy B ending investment | ₹2.78 crore |
| Strategy C ending investment | ₹43.71 lakh |
The investment uses an 11.5% net annual input divided by 12. Figures are rounded, with no tax, exit load or loan charges. Strategy B also needs ₹88.63 lakh in EMI payments from outside the investment over the term.
How to Use the Loan Arbitrage Calculator
Enter the outstanding loan amount, current rate and remaining tenure.
Enter the lump sum available to remain invested.
Set an investment return assumption and any expense adjustment.
Match the SWP to EMI or enter the monthly withdrawal separately.
Review loan balances, investment balances, withdrawals and shortfalls.
Test lower returns, higher borrowing rates and different withdrawals in Dynamic What-If. Compare saved scenarios using the same cash-flow basis.
If inflation adjustment is enabled, read the real ending value alongside the nominal ending value.
Interpreting the Comparison
A return spread is not the final gain
The difference between assumed investment return and loan interest omits timing, changing balances and costs. Compare the complete cash flows, including external EMI payments, rather than subtracting two percentages.
SWP payments can use capital
An SWP generates cash by redeeming units. It does not withdraw only the profit earned. During weak markets, funding the same EMI can require redeeming more units. AMFI's investor booklet explains SWP as regular redemptions. [1]
What remains outside the model
The calculation does not simulate changing market returns, floating loan resets, tax, exit loads, prepayment charges or emergency withdrawals. It also does not model a loan against pledged mutual fund units, loan-to-value limits or margin calls.
For the borrowing comparison, review the lender's repayment schedule and full cost disclosures. RBI's Key Facts Statement explains APR and relevant loan charges. [2]
Use the Loan Calculator for EMI details, the SWP Calculator for withdrawal planning and the Investment Calculator for a lump sum plus regular additions.
Frequently Asked Questions
Does Strategy A repay the loan immediately?
Why is Strategy B's final investment usually larger?
What happens if the investment runs out?
Is a return above the loan rate enough to make this work?
Does this calculate a loan against mutual funds?
Assumptions and Disclaimer
The main projection uses fixed monthly loan payments, constant net investment growth and month-end withdrawals. Inflation adjustment discounts final value without changing nominal cash flows. The withdrawal-rate reference is a separate illustration.
Loan payments remain due if investments underperform or run out. This is education, not investment advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Past performance does not guarantee future results.
Sources and Review
- AMFI Mutual Funds Made Simple investor booklet
- RBI Key Facts Statement for Loans and Advances dated 15 April 2024
Content reviewed on 26 October 2026.