What is SWP?
SWP stands for Systematic Withdrawal Plan. As the name suggests, SWP allows you to receive your investment returns periodically. You can choose to receive a fixed or variable amount at pre-determined intervals – monthly, quarterly, or half-yearly. The withdrawal plan ensures that you do not end up using your corpus amount all at once.
You can opt for SWP in two ways – you can either choose to receive a fixed amount or the investment capital gains. Suppose you choose to receive a fixed amount every month here’s how it will work.
Let’s say you hold 10,000 units of a mutual fund scheme in your portfolio. The Net Asset Value (NAV) of the units in the month of January is Rs 20. You wish to withdraw Rs 10,000 every month from your fund investment through SWP. Considering this the mutual fund house will determine the units required to be redeemed. The fund house will divide Rs 10,000 by 20 = 500 units. This indicates the fund house will have to redeem 500 units from your portfolio so that you receive Rs 10,000 in that very month.
Now the mutual fund units required to be redeemed every month will vary with changing NAV. If the fund’s NAV increases, fewer units will have to be redeemed and vice-versa. Consider the market positioning and your financial requirement to choose an appropriate SWP.
What is an SWP calculator?
Most people find it difficult to determine the withdrawal amount they will receive from their Mutual Fund investment when opting for SWP. The SWP calculator is an online tool that helps you out of this fix. The calculator provides an estimate of the amount you will receive on withdrawal.
Enter your total investment amount, expected return rate, and SWP period. The calculator will reflect the withdrawal per month in a matter of seconds. The calculator simplifies calculations and allows you to efficiently plan your finances.
The numeric results are often accompanied by a graphical representation of the data in the form of a pie chart. This facilitates better understanding.
An SWP calculator is a web-based tool that instantly calculates the final value. You should enter the necessary information such as the total investments, the monthly withdrawal amount, the expected return rate and the time. The calculator will display the results immediately. Thus, an SWP calculator does the work of calculating the final amount out of the equation and lets you know how much your investment will be able to fund you for the specified time. It also provides other benefits.
- The calculator provides accurate results. Calculating the value by hand might lead to several errors.
- It is simple to use and does not require any financial knowledge. Anybody who can use the internet and knows how to input the numbers can use this tool. It simplifies the way you invest in mutual funds
- It saves you the hassle of performing complex calculations. It also saves a lot of time.
- It is free of use and is available free of cost online. With this tool, you can use different values for investment and withdrawal to see how the final value changes
- It helps you plan out your finances according to your financial goals.
How to calculate the future value of the investment using the formula:
Assume you have invested ₹1,00,000 in a mutual fund scheme for ten years. The estimated rate of return is 10 %. The formula for calculating the future value of an investment in:
Future value = present value (1+r/100)^n
Present value = ₹1,00,000
R= estimated rate of return of 10% =10/100 = 0.1
N= duration of the investment = 10 years
FV= 1,00,000 (1+10/100)^10
FV = 1,00,000 (1.01)^10
FV= 1,00,000 (2.59)
FV = ₹2,59,374.2
So, the future value of the mutual fund investment after 10 years at an estimated rate of return of 10 % is ₹ 2,59,374.2.
This formula does not take withdrawals into account. To calculate the future value with withdrawals, the formula is even more complex
FV = PMT [(1+r/n)^nt-1)/(r/n)]
This calculation will take a long time and is complex. It is easier to use an online SWP calculator that will provide you with accurate and fast results.