Methodology

How the calculator works

A transparent look at the maths and assumptions behind every result — so you can trust the numbers.

The 5-Step Process

1
You take a loan and invest it entirely
The full loan amount is assumed to be invested on Day 1 in a market instrument (e.g. a mutual fund). The calculator sets your opening corpus equal to the loan principal.
2
EMI is calculated using the standard formula
Your monthly EMI is computed using the industry-standard reducing-balance formula.
EMI = P × r × (1 + r)n  ÷  [(1 + r)n − 1]
Where P = principal, r = monthly rate (annual ÷ 12 ÷ 100), n = total months.
3
Investment grows month-by-month (SWP)
Each month, your corpus earns the expected monthly return, then the EMI amount is withdrawn (the Systematic Withdrawal Plan). The corpus is never allowed to go below zero.
Corpusn = Corpusn-1 × (1 + r_inv) − EMI
4
Break-even rate is identified
The break-even investment return rate is approximately equal to the loan rate. If your expected return is below this, the strategy results in a net loss — and the calculator warns you immediately.
5
Net Profit / Loss is calculated
At the end of the period, your Net Profit is whatever remains in your investment corpus. If the corpus ran out early and couldn't cover the full loan, your Net Loss is the amount you paid out-of-pocket to cover the remaining EMIs.
Net P&L = Final Corpus − Out-of-Pocket Shortfall
Concepts

Key terms explained

EMI (Equated Monthly Instalment)
A fixed monthly payment to the bank that includes both principal repayment and interest. It stays constant throughout the loan tenure.
SWP (Systematic Withdrawal Plan)
A feature offered by mutual funds to withdraw a fixed amount each month. Here, we use it to service the EMI directly from the investment corpus.
CAGR (Compound Annual Growth Rate)
The annualised rate of return on an investment assuming profits are reinvested. The "Investment Return Rate" field uses CAGR.
Break-Even Rate
The minimum investment return rate at which you neither make a profit nor a loss after fully repaying the loan using SWP withdrawals.
Risk Assessment

Return rate vs loan rate — what it means

Scenario Return Rate vs Loan Rate Likely Outcome Risk Level
Conservative — Return below loan rate e.g. 7% vs 9% Net loss; corpus depletes before tenure ends High
Break-Even — Return ≈ loan rate e.g. 9% vs 9% Tiny profit or loss; barely covers interest cost Medium
Moderate Gain — Return slightly above e.g. 11% vs 8.5% Modest profit; corpus survives with some buffer Medium
Optimal — Return well above loan rate e.g. 14% vs 8.5% Strong profit; corpus grows significantly Low

Past market returns are not indicative of future performance. Always consult a registered financial advisor before making investment decisions.

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