SWP Calculator

SWP Calculator

A Systematic Withdrawal Plan (SWP) is a scheme in which investors can periodically withdra their invested funds from a mutual fund. Depending upon their financial requirements, investors can either opt for capital appreciation withdrawal or go for a fixed amount withdrawal by redeeming the units at regular intervals. These withdrawals can be made monthly, quarterly, or annually. SWP generates consistent cash flows as long as there are balance units in the fund and helps create an additional stream of income for the investors.

Understanding SWPs

Instead of a huge lump sum amount, systematic withdrawal plans (SWP) allow smaller but regular withdrawals, thereby offering multiple has many additional features such as-

• SWP is a facility extended to the investors that allows them to withdraw money regularly from the mutual fund scheme, which serves as a good source of income for investors
• Investors can create a secondary stream of revenue through long-term investments and opting for SWP
• SWPs offer the flexibility to the investors to pre-plan their withdrawals by letting them decide the frequency as well as the amount of withdrawal
• Investors can choose to withdraw the capital appreciation, that is, only the gains keep the invested capital intact. Alternatively, investors can also withdraw a fixed amount that will involve the selling of units
• In SWPs, investors don't need to time the market as they can buy more units when the market is performing low and sell less units when the market is performing high. This reduces the overall investment cost
• The concept of Rupee Cost Averaging in SWPs protects the investors against the potential losses of unit redemption during market downturns. Overall, the returns are averaged out against the losses and the costs of buying the units
• There is no TDS (Tax deducted at source) on SWPs. While the taxes are applicable on redeemed/withdrawn units, they are not deducted at source unlike many other investments

What is a SWP Calculator?

The SWP or Systematic Withdrawal Plan Calculator is basically a calculation that tells you about your monthly withdrawals from your mutual fund investments. The SWP calculator gives out the final amount that you would have after making the withdrawal. The SWP calculator consists of a formula box, wherein you are supposed to enter your total investment amount, your withdrawal amount per month, the expected annual rate of return and the tenure of your investment. By submitting all these details, the SWP calculator will show you an estimated value of your investments in the future, after making the withdrawals.

How does SWP Calculator Work?

The SWP calculator works on the following formula-

A = PMT ((1+r/n)^nt – 1) / (r/n))

Where-
A = Future Value of the Investment
PMT = Payment amount for each period
n = number of compounds in a period
t = number of periods the money is invested

Now, let’s take an example to understand how this formula works-

Suppose, you have an initial investment of Rs. 1,20,000 in a mutual fund scheme. You redeem an SWP amount of Rs. 10,000 per month. You have a withdrawal tenure of 12 months and the expected annual return is 7%.

MonthBalance at the beginning of the month (Rs)Redemption Amount (Rs)Interest (Rs)Balance at the end of the month

Now, as per the above calculation, you have a future value of Rs. 4,026 as shown in the table.

Note that the above calculation is mathematical and you don’t need to perform this calculation manually. You can simply enter a few details and use the SWP calculator to find out the final amount of your investments after making regular withdrawals from your mutual funds.

How to Calculate Returns Using SWP Calculator?

Using the SWP Calculator, you simply need to enter the basic details related to your investment. These details include your total invested amount, your monthly withdrawal, expected rate of return and the annual duration of your investment.

Upon entering these details, the SWP calculator would instantly show you your total investment amount, total withdrawal, total interest earned on your investment and the final value of your investment.

Who should Invest in SWP?

The following can consider SWPs-

• Investors who want to create an alternative regular flow of income should invest in long-term mutual funds and opt for SWP. The fund withdrawn can be used to pay EMIs, have a self-created pension by building a retirement corpus and achieving such investment goals
• Investors who are risk-averse and want to invest in better alternatives to bank deposits can go for SWP in debt funds. Debt funds are low-risk funds and investors can invest in them. By choosing SWP, a regular cash influx is generated
• Investors who are not experts in judging the market timings as to, when to withdraw the units to have optimum benefits. If markets are at an all-time high, investors may get confused if they should redeem now or expect the markets to rise further. If markets are low, then they may not be able to decide if they should redeem before incurring further losses or wait for markets to revive. It is advantageous for such investors to opt for SWP

Wrapping it Up:

Systematic Withdrawal Plans (SWPs) are not a type of mutual fund but a method to withdraw money from the fund. Instead of redeeming the units at once, the units are redeemed on a regular basis that can be monthly, quarterly, or annually. You can use a SWP calculator to calculate the funds that you will be able to withdraw from your mutual fund investments at regular intervals.