SWP (Systematic Withdrawal Plan) allows you to withdraw a fixed amount from your mutual fund investment regularly while your remaining investment continues to grow. Learn what SWP calculator is, how to use SWP calculator, and its benefits.
What is SWP calculator?
An SWP calculator can be a very handy tool when you are starting an SWP. It can help you plan your withdrawal smartly.
It is a simple tool that helps you analyse the outcome of SWP. SWP calculator calculates the final amount at maturity (end of SWP) based on the initial investment, the expected return, and the tenure of the SWP.
Suppose you invested ₹10,00,000 at the beginning of the year and set up a monthly SWP of ₹10,000 for 20 years.
Each month, ₹10,000 is withdrawn, and mutual fund units equivalent to that value (based on the current NAV) are redeemed. The rest of the amount continues to earn returns. Over time, this creates a balance between withdrawal and growth.
Using an SWP calculator, you can test different scenarios such as increasing the withdrawal amount, adjusting the expected return rate, or changing the tenure. This helps in effective financial planning and allows you to check whether your initial investment is sufficient to sustain the SWP over the desired period.
How does the SWP Calculator work? Example of SWP Calculator
SWP works by ensuring you get rewarded for your investment consistently instead of redeeming the entire amount at once. Think of it like getting a salary from your investments. Let’s understand how SWP works:
Let’s see how the SWP calculator works with the help of manual calculations.
Assume you have ₹10,00,000. You invest this amount in a mutual fund in January. Now, at the time of investment, the NAV (Net Asset Value) of a mutual fund is ₹10. This means you have 100,000 units (10 Lakh/10) of the mutual fund. You set up an SWP to withdraw ₹5000 every month. This is how you would receive withdrawals.
Assuming your investment grows by 12.2% annually. Let’s see your balance at the end of the year.
| Month | NAV | Amount Withdrawn | Units Sold (Amount Withdrawn/NAV) |
| Jan | 10 | ₹5000 | 500 |
| Feb | 10.10 | ₹5000 | 495.05 |
| Mar | 10.20 | ₹5000 | 490.20 |
| Apr | 10.30 | ₹5000 | 485.44 |
| May | 10.41 | ₹5000 | 480.31 |
| Jun | 10.51 | ₹5000 | 475.74 |
| July | 10.62 | ₹5000 | 470.81 |
| Aug | 10.73 | ₹5000 | 465.98 |
| Sep | 10.84 | ₹5000 | 461.25 |
| Oct | 11 | ₹5000 | 456.62 |
| Nov | 11.11 | ₹5000 | 452.08 |
| Dec | 11.22 | ₹5000 | 447.23 |
| Total | – | ₹60,000 | 5680.70 |
Balance Units: 100,000 - 5680.70 = 94,319.3
Final Amount in December: 94,319 * ₹11.22 = ₹10,58,259
The above table shows that despite withdrawing ₹60,000 in the entire year, your investment grew to ₹10,58,259. That is the power of SWP.
This calculation can become very tiresome when we estimate for 5, 10, 20 years down the line, and therefore, we have created the SWP calculator, where we have integrated this calculation. Now, let’s understand how to use the SWP calculator.
How to use the SWP Calculator?
SWP calculator is a financial tool that requires you to enter four details to give the total investment and withdrawal amount, along with the final value of the investment after all withdrawals:
1. Total Investment: The total invested amount in the mutual fund scheme.
2. Withdrawal Amount (per month): The amount you wish to withdraw every month (or quarter, year).
3. Expected Return (annualized): The expected annual return from the mutual fund scheme.
4. Time Period: The period of SWP, i.e., the number of years for which you will keep withdrawing funds monthly.
Based on these inputs, the SWP calculator will calculate and show you the following:
- Total Investment: The Total amount invested in the mutual fund.
- Total Withdrawal: The amount you would have withdrawn during the SWP period.
- Final Value: The Final value of your investment after subtracting the total withdrawal amount
What are the benefits of SWP Calculator?
SWP offers several benefits to investors. Some of these include:
1. Easy to use
The SWP calculator is very easy to use as compared to manual calculation. You just need to enter a few variables like withdrawal amount, time, expected return, and initial investment, and you can find the total withdrawal amount at the end of tenure and final maturity value.
2. Risk assessment
SWP calculator can help in analysing the risk of running out of funds while taking into account the SWP amount and expected return, after which one can plan accordingly.
3. Scenario Analysis
You can test various scenarios using the SWP calculator by changing any of the variables, like initial investment, expected return, or the SWP amount.
4. Retirement Planning
SWP is a great tool for retirement planning, and the SWP calculator is efficient for retirement planning. One can analyse the amount of SWP for retirement using the SWP calculator without the risk of running out of funds.
Difference between SIP and SWP?
SIP is a Systematic Investment Plan, while SWP is a Systematic Withdrawal Plan. SIP builds in investors a disciplined investment habit. SWP aims to encourage investors with consistent income generation. Under SIP, you invest a fixed amount at regular intervals. With SWP, you withdraw a fixed amount at regular intervals.
SIP is an investment strategy that is used for wealth building and benefits from rupee-cost averaging. With SWP as an investment strategy, investors receive regular income along with capital appreciation and without completely redeeming their investment.
Who should opt for SWP?
SWP may not work for every investor. Here are a few situations where SWP as a strategy may work well:
1. If you are retired
If you are a retired individual and need a steady cash flow. SWP works as a great choice by ensuring your investments are at work while you enjoy a small percentage every month.
2. If you have a lump sum amount
When you have an accumulated corpus and you want to earn consistent income from it. Using SWP helps you invest your money in the market and earn returns consistently.
3. If you need regular income
When you have an outstanding expense like a loan or EMI that needs to be paid out every month. You can use SWP to fund it.
4. If you are risk-averse
SWP also works efficiently for people who are risk-averse and do not want to hold on to their investment in wait for the ‘perfect time’. Instead, they want to earn a small amount from it periodically.
How to efficiently plan your SWP?
While SWP is an effective strategy, planning it efficiently is as important. Here are some steps you can take to ensure the same:
1. Decide your withdrawal amount
The first step to any planning process is identifying why and how much you need to withdraw every month. This helps you determine the amount and tenure of the investment.
2. Choose the right mutual funds
The next step is to choose the right mutual fund that offers optimum returns. If you choose a mutual fund that yields low returns, SWP will not be as effective. Refer to this guide for choosing the best mutual fund for yourself.
3. Set the right timeline
Know when you need to withdraw every month. Plan and set up the SWP accordingly. Use the SWP calculator to get an estimate of your returns and final value at the end of the investment tenure.
Conclusion
The SWP calculator can be a very good tool in effective financial planning. Whether you are planning for retirement or looking for regular monthly income, SWP is a great withdrawal option, and the SWP calculator can help you estimate various scenarios. We tried to cover as many details about the SWP calculator in the blog, but if you want more information about SWP, you can click here and get detailed information.