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Everyone would be a billionaire if there were one formula for investing. However, while almost everyone is doing SIPs in mutual funds, you can have different financial goals and requirements. Therefore, it’s always best to know and consider your options before making any investment. This article will teach you about the Systematic Withdrawal Plan (SWP) and SWP mutual fund calculator.
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| Month | Balance at Begin (₹) | Withdrawal (₹) | Interest Earned (₹) | Balance at End (₹) |
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What is an SWP?
Just like you invest in mutual funds periodically with a Systematic Investment Plan, you can withdraw systematically in a Systematic Withdrawal Plan or SWP. It allows you to withdraw your investments from the mutual fund system gradually. However, unlike single withdrawals, you can withdraw money from SWP in installments. It is the exact opposite of Systematic Investment Planning (SIP). You can know the investment parameters with a systematic withdrawal plan calculator.
SIP directs bank account savings to preferred mutual fund systems. SWP directs investments from mutual fund plans to savings accounts. You can also withdraw capital gains on your investment. Your money stays in the investment, and you will be able to withdraw regular income.
Example of Systematic Withdrawal Plan
Suppose you invest Rs 10 lakhs in a mutual fund scheme. With a Net Asset Value (NAV) of Rs. 20, you receive 50,000 units in your portfolio. Let's assume you start a monthly SWP of Rs 5,000 after one year from the investment date just to avoid exit loads.
Assuming the scheme NAV in the first withdrawal month was Rs 22. To generate Rs 5,000, the AMC redeems 227.273 units (Rs 5,000 / 22 NAV). Therefore, the balance units will now be 49,772.727 (50,000 - 227.273). The Asset Management Company (AMC) redeems 222.222 units (Rs 5,000 / 22.50 NAV) assuming NAV was 22.50 in the 2nd month. Therefore, the unit balance reduces to 49,550.505 (49,772.727 - 222.222). This process continues monthly till the end of the SWP period chosen by the investor.
The above example shows that the SWP plan's unit balance decreases over time. Still, the investment value increases when the plan's NAV rises by a more significant percentage than the payout rate. However, if the plan's NAV goes down instead of up, the investment value will be adversely affected.
How do SWP calculators work?
SWP calculator is an easy-to-use tool that can estimate withdrawal amounts when entering your inputs. The SWP calculator shows regular cash flow with a systematic withdrawal plan. SWP calculation uses the formula:
A = PMT ((1+r/n)^nt – 1) / (r/n))
A = future value of the investment
PMT = amount paid each period
n = number of compounds in a given period
t = number of periods
How to use the 5Paisa SWP Calculator?
The 5Paisa SWP Calculator is one of the best SWP calculators and helps you to calculate the SWP mutual fund investment with minimal inputs over a tenure. You can use the 5Paisa SWP calculator for-
● Filling in the total investment amount in mutual funds.
● Entering the withdrawal amount per month from the mutual fund scheme
● Providing the expected rate of return
● Entering the investment tenure in years
● After all four inputs, you will get your result
Benefits of SWP Calculator
- Monthly income: You may use the 5Paisa Systematic Withdrawal Plan Calculator to calculate the monthly payment from your mutual fund investment via the Systematic Withdrawal Plan.
- Maturity amount: You can know the maturity amount for different monthly withdrawals with the 5Paisa SWP Calculator
- Estimations: The calculator helps you estimate the best monthly withdrawals from mutual fund systems
- SWP surplus: The SWP Calculator helps you determine the SWP surplus that can be used in other financial instruments.
Frequently Asked Questions
How does the Systematic Withdrawal Plan work?
Choosing a systematic withdrawal plan affects your mutual fund account. It is noteworthy that the SWP differs from opening a fixed deposit (FD) account with a bank that serves a monthly interest. If it is a time deposit, even if you withdraw interest, there is no impact on the corporate value. However, the mutual fund's systematic withdrawal plan reduces the fund's value by the withdrawn number of shares.
When do I use the Systematic Withdrawal Plan?
You can use the SWP to schedule withdrawals based on your funding needs. If your goal requires tiered funding, i.e., requires funding at an interval, you can choose SWP. SWP is also helpful for investors looking for a second source of income in addition to their primary income source. As an investor, this plan allows you to get a regular income from your investments. If you need a steady income for travel or other needs, this is a great way to meet them.
Who can choose to invest in a Systematic Withdrawal Plan?
You can opt for a Systematic Withdrawal Plan if you want to-
- Be a disciplined investors
- Create an alternate source of income
- Create their pension fund
- Protect their capital by rupee-cost averaging
- Avail of tax benefits
How do long-term and short-term capital gains affect my tax?
If you hold the Debt Fund for less than 36 months, the realised capital gains are added to your gross income and taxed at the income tax rate. In case the holding period exceeds 36 months, the capital gains will be considered "long-term" and taxed at the 20th indexation.
Realised capital gains are taxed at 15% if you hold the equity fund for less than one year. However, if the holding period is one year or more, you will realise long-term capital gains and be taxed at 10% without indexing.
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Disclaimer: The calculator available on the 5paisa website is intended for informational purposes only and is designed to assist you in estimating potential investments. However, it is important to understand that this calculator should not be the sole basis for creating or implementing any investment strategy. View More..
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