What is SWP?
SWP or Systematic Withdrawal Plan is a way of withdrawing money from a mutual fund at regular intervals. Instead of redeeming your whole investment at once, you withdraw a fixed amount every month while the rest of your money stays invested.
SWP is a popular choice for investors who want a regular income from their investments, such as retirees. Investors can stop or modify the SWP whenever they want.
SWP is the reverse of a SIP. In a SIP, you invest a fixed amount regularly; in an SWP, you withdraw a fixed amount regularly from a corpus you have already built.
Fun fact
If your fund earns more than you withdraw, your investment can keep growing even while it pays you a monthly income.
What is a SWP Calculator?
The SWP calculator is a mathematical tool that helps you understand how much you can withdraw every month from your investment, and how much will be left at the end of the withdrawal period.
SWP calculators do not provide you with the exact amount you will be receiving in the future. They give you a rough estimate based on the return rate you expect. The actual value of your investment depends on various factors, such as future market returns and dynamics, expense ratio, etc.
Why you should use a SWP Calculator?
- Simplifies the process: Working out a month-by-month withdrawal schedule by hand is tedious. The SWP calculator does it for you in seconds.
- Plan a regular income: Find a monthly withdrawal amount your investment can sustain for as long as you need it.
- See what's left: Know how much of your investment will remain at the end of the period, so your corpus doesn't run out early.
- Helps in comparison: Compare how different withdrawal amounts, return rates and time periods change the outcome.
How Does a SWP Calculator Work?
The SWP calculator works on the following inputs:
- Total Investment (P): The amount you invest at the start.
- Expected Return Rate (R): This is the anticipated rate of return you expect to earn yearly.
- Time Period (N): Number of years for which you want to withdraw.
- Withdrawal per month (W): The amount you withdraw every month.
The SWP Calculator relies on the following formula to calculate the value left at the end:
Final Value = P × (1 + r)^n – W × {[(1 + r)^n – 1] ÷ r}
- P
- Total Investment
- W
- Withdrawal per month
- r
- Monthly Growth rate = ( Expected Return Rate ) / 12
- n
- Time period in months = Time Period * 12
Let’s work through an example for better understanding.
Formula to Calculate SWP Returns with an Example
Consider an example for a better understanding.
- Total Investment: ₹10,00,000
- Withdrawal per month: ₹10,000
- Time Period: 5 years (60 months)
- Expected Return Rate: 10% per annum
Using the formula:
FV = 10,00,000 × (1 + 0.10/12)^60 – 10,000 × {[(1 + 0.10/12)^60 – 1] ÷ (0.10/12)}
After calculation, you will have an approximate final value of ₹8,70,938.
In conclusion, you will withdraw ₹6,00,000 over 5 years and still have about ₹8,70,938 left in your investment at the end.
What are the benefits of starting a SWP?
There are numerous benefits of starting a SWP:
- Regular income: SWP gives you a fixed amount every month, which makes it well suited for meeting regular expenses.
- Stays invested: The amount you don’t withdraw keeps earning returns, so your money continues to work for you.
- Flexible: You choose how much to withdraw and for how long, and you can change or stop the SWP whenever you want.