Invested Amount
Total Withdrawal
Final value
What is a Systematic Withdrawal Plan?
A Systematic Withdrawal Plan (SWP) is a mutual fund facility that allows you to withdraw a specified amount from your investment on a regular basis, often monthly. It works in the opposite way to a Systematic Investment Plan (SIP), which requires regular investments. An SWP allows you to invest a lump sum once, and the fund then redeems units on a regular basis to give you the withdrawal amount you choose.
Each withdrawal is carried out by redeeming units based on the fund's NAV (Net Asset Value) at the time of withdrawal:
- When NAV is high, fewer units are redeemed.
- When NAV is low, more units are redeemed.
This structure provides a consistent income stream while the remaining units stay invested and have the potential to increase, according to market conditions. The investment value fluctuates over time depending on how much you withdraw and how well the fund performs, making SWP a flexible alternative for people seeking a monthly income without totally exiting their investment.
What is an SWP Calculator?
A Systematic Withdrawal Plan calculator is a financial tool designed to help investors estimate the potential outcomes of implementing a Systematic Withdrawal Plan strategy for their mutual fund investments. It allows individuals to assess the future value of their investments based on various parameters such as the initial investment amount, withdrawal per month, expected annual rate of return, and investment tenure.
By entering these key variables into the SWP calculator, investors can simulate different scenarios and obtain a projection of the total value of their mutual fund investment after the specified withdrawal period. This tool helps individuals determine the feasibility and sustainability of their chosen withdrawal strategy and assists in making informed decisions regarding their investment and income requirements during retirement or other financial goals, including suitable investment options for retirees
Example of an SWP
Let's look at a simple example to see how an SWP calculator works:
Assume:
- Investment amount: ₹10,00,000
- Withdrawal is ₹5,000 per month
- Expected yearly return: 10%
- Tenure: 12 months
Each month, ₹5,000 is taken out, with the remaining amount increasing based on the expected return. After 12 months, withdrawals will total ₹60,000, with the remaining amount reflecting compounded growth minus monthly redemptions.
The SWP calculator computes:
- Invested amount: This is the total amount you’ve invested
- Total withdrawal: This is the total you’ll withdraw
- Final value: Represents the remaining balance after the withdrawal
How Does an Online SWP Calculator Help?
The online SWP calculator helps investors understand how regular withdrawals will impact their investments over time. It takes into account important factors such as:
- Compounding returns
- The impact of each withdrawal on the remaining principal
- The possible future value of the invested amount
To make this even more beneficial for both novice and experienced investors, the calculator offers numerous benefits, including:
- Shows future projections: Clearly helps investors see how their assets may increase or decrease over time, dependent on withdrawal frequency and quantity.
- Allows for easy plan adjustments: Users may adjust parameters like withdrawal amount, tenure, and estimated return rate to discover the best sustainable strategy for their requirements.
- Encourages better financial decisions: By analysing several scenarios, investors may select a withdrawal plan that is consistent with their financial objectives, income requirements, and risk tolerance.
- Suitable for all experience levels: Beginners gain a basic knowledge of how SWPs operate, while experienced investors may fine-tune strategies using precise estimates.
What is the SWP Calculator Formula?
The SWP calculator formula calculates the future value of mutual fund investments based on the total investment amount, withdrawal per month, expected annual rate of return, and tenure of the investment.
Here is the correct mathematical representation:
Final Value = A (1 + r)^n - [W x (1+r)n-1]/r
Here's a breakdown of the variables used in the formula
- A: Initial Lumpsum Investment Amount
- W: Fixed Withdrawal Amount per period
- r: Expected rate of return per period (e.g., Monthly rate = Annual Rate / 12)
- n: Total number of periods (months)
How to Use an SWP Calculator?
To use the Angel One Systematic Withdrawal Plan calculator, simply visit the Angel One SWP calculator online and take the following steps:
- Enter the ‘Total Investment’ i.e. the total amount that you have invested initially.
- Enter the ‘Monthly Withdrawal’ ie. the amount that you will be withdrawing from your investment at the end of every month.
- The ‘Expected Return’ that you wish to gain annually. Note that the final return you actually receive will be less than this percentage value because you will be withdrawing from the investment amount periodically.
- Enter the duration of the investment under ‘Select Duration’.
Once you enter these details, on the right, the Angel One SWP return calculator will show you the:
- ‘Invested Amount’ i.e. how much you had originally invested.
- ‘Total Withdrawal’ i.e. the accumulated value from the monthly withdrawals.
- ‘Final Value’ i.e. how much value remains within the investment at the end of the investment duration.
SWP Calculator FAQs
Can I stop or cancel my SWP at any time?
Yes, a Systematic Withdrawal Plan (SWP) can be stopped anytime as per your choice. SWPs offer flexible features, giving you the freedom to pause or cancel withdrawals whenever your financial needs change.
Which investment option is more suitable: SIP or SWP?
Deciding between SWP and SIP depends on what you want to achieve financially. SIP works well if your goal is to grow your wealth steadily over time through regular investments. On the other hand, SWP can be a good choice if you want a fixed income at regular intervals, offering both flexibility and easy access to your money.
Why should I use an SWP calculator?
Using an SWP calculator offers several benefits. It helps you accurately plan your withdrawals, set financial goals, make informed decisions, assess risks, evaluate different withdrawal scenarios, and optimize your investment strategy. It provides clarity and enables you to align your SWP with your specific financial needs and objectives.
Where can I find an SWP calculator?
You can find SWP calculators online on investment platforms like Angel One. These calculators are often available for free and provide a user-friendly interface to input the necessary parameters and obtain SWP calculations.
Can I trust the results from an SWP calculator?
SWP calculators are designed to provide accurate calculations based on the input parameters. However, they are tools meant to assist in financial planning, and the results should be used as guidelines. It's important to consider market fluctuations, changing investment conditions, and consult with a financial advisor to make well-informed decisions.
What are the disadvantages of SWP?
The following are some of the disadvantages of SWP:
- Averaged returns - Since you do not get to choose the time of the withdrawals and their amounts yourself, your investment’s returns get averaged over time.
- Exit load - If you withdraw from the investment plan too soon, then the fund house may charge you an exit load.
What are the major risks associated with SWP investments?
The major risk associated with SWP investments is the risk of a fall in the NAV of the mutual fund units. If the market falls while you continue to withdraw a fixed amount, you will be forced to redeem more units to match that amount, which can deplete your capital faster than expected.
Which SWP is the best for investing?
The returns from SWPs, among other factors such as volatility of the returns, the associated risk, the dividends earned, the tax saving features can help you choose the right SWP for you.
Can SWP help me save on taxes?
You can invest in an ELSS fund or Equity-linked Savings Scheme with SWP. It will help you save in taxes under section 80C of the Income Tax Act, 1961.
How accurate is the SWP calculator?
An SWP calculator offers close estimations based on your inputs, but the actual outcome may differ owing to market volatility. So, it should be used as a planning tool, not as a guaranteed prediction.
Who should invest in SWP in mutual funds?
SWPs are ideal for investors seeking consistent income, such as retirees or those who want limited and controlled cash flows, while keeping the remaining investment market open for potential growth.
How is SWP different from withdrawing lumpsum amounts?
An SWP provides periodic, predetermined withdrawals and steadier cash flow and allows for Rupee Cost Averaging on redemptions, whereas a lump-sum withdrawal redeems the whole investment all at once, affecting growth potential and tax efficiency.
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