If you have invested in mutual funds in a lump sum, you must have heard about SWP (Systematic withdrawal plan). Simply put, SWP allows investors to withdraw a fixed or variable amount at a predetermined frequency from their mutual fund investments (the remaining investment amount continues to generate interest). An SWP offers investors enough liquidity to access their money based on their needs and yet allows them to meet their financial goals in a specific timeline.
Having that said, a higher withdrawal rate can cause a capital & interest loss from investments. A higher capital loss hampers investment planning, and ultimately the goals remain unrealized. So, how to decide the limit of money that one can withdraw without spoiling their financial planning? It’s through the SWP calculator.
What is an SWP calculator?
An SWP calculator is an online tool that allows investors to perform rapid calculations related to systematic withdrawal plans. It requires a few inputs from the users to show valuable information, such as the total investment, the final value of the investment, and the withdrawal amount, and help them choose an appropriate SWP plan for themselves.
How does an SWP calculator work?
A typical SWP calculator works through a simple formula,
F = WAMT ((1+r/n)^nt – 1) / (r/n))
Herein, each element represents a different entity and meaning.
F: Final Value of investment at the end of the tenure
WAMT: Withdrawal amount for each period
r: expected rate of interest
n: number of compounding in the specified period
t: number of times the amount has been invested
Let’s take an example and try to understand the SWP calculations:
Assume you have invested Rs 4,00,000 in a mutual fund scheme and opted for an SWP for 12 months with an SWP amount of Rs 5,000 per month. The expected rate of return here is 8%. As per the example and after performing the manual calculations, you get the final value of your investments as Rs 3,69,831. If you go by the manual calculations, you have to use the above formula 12 times until you reach the final investment value. Following such a process can be time-consuming and prone to errors. With an online SWP calculator, you can simplify the task in a few simple steps and get additional benefits that we shall discuss further.
So, how to use an online SWP calculator?
Follow the below-mentioned steps for using the SWP calculator from the Glide invest.
- Visit the Glide Invest website or download the app, and under section tools, select financial calculators, then click on SWP calculator.
- Once redirected to the SWP calculator, select the lump sum amount you want to invest. You can select an amount up to Rs. 50,00,000.
- Now select the withdrawal amount you wish to receive from your mutual fund investments. You can choose the amount within the range of 1000-50000.
- Further, select the investment period for which you want to or should stay invested in mutual funds so you can realize the expected returns. For this, a 1-20 year time frame is available in the tool for you to choose from.
- Lastly, select the expected rate of return the fund scheme is offering.
Once you select or enter all the values, the SWP calculator will generate results for you accordingly in the form of numerical data, such as,
- Total Investment amount would need to realize your goals
- Total Withdrawal amount that you can withdraw during your chosen SWP period
- The final value of your investment, excluding the total withdrawal amount at the end of the tenure.
Suppose you wish to invest in a mutual fund scheme through SWP. You start your investment with a lump sum amount of Rs 5,00,000 and opt for a withdrawal of Rs 10,000 per month with a tenure of 5 years and an expected rate of return of 10%. When you enter the values on the SWP calculator, you will get a result indicating the corpus you will make at the end of the tenure with the total investment and withdrawal amount. In this case, you will generate an estimated maturity amount of Rs 39,643 with a withdrawal amount of Rs 6,00,000.
Based on these values, you can compare various mutual fund schemes by altering the values to see which fund scheme works best for you and help you reach your goals with a specific investment amount and time frame. If your input combinations produce a negative final investment value, you can tweak the inputs until you get the desired value.
Remember, the results from the SWP calculator may differ from the actual ones because of several factors, such as exit load or expense ratio, as SWP calculators don’t count these factors. Also, inflation is something that you should consider when investing in mutual funds, as the price changes with time. You can consult a financial advisor to get an idea about the inflation rate at which prices will likely increase in the future.
Benefits of SWP calculator
- SWP ensures investors get their monthly returns and ROI with the same investments and the SWP calculator helps them compute both.
- One can easily calculate their monthly income from mutual fund investment and the maturity amount.
- SWP calculators are easy-to-use tools, so anyone wishing to calculate the amount for withdrawal and during maturity can use it. All you need is to select the variables, and you are ready with the results.
- With the Systematic Withdrawal Plan or SWP calculator, you can identify the best monthly withdrawals by analyzing the fund schemes.
A systematic Withdrawal Plan or SWP is best when it comes to ensuring a consistent income from investments. By leveraging the power of the SWP calculator, you can find the right SWP for your mutual fund investment and enjoy the best of both worlds of returns; through consistent monthly incomes and a large corpus at the end of tenure.
