SWP Calculator – Systematic Withdrawal Plan

By Tibor Pal, PhD candidate and Purnima Singh, PhD
Last updated: Oct 16, 2021

If you are thinking about retirement and want a regular cash flow, the SWP calculator may help you plan your finances.

In case you are wondering what SWP is, or how it can help you plan your retirement or other expenses, worry not! We have got you covered. Continue reading to know:

  • What is SWP in mutual funds?
  • How does SWP in mutual funds work?
  • What are the benefits of SWP?
  • How to use the mutual fund SWP calculator with inflation to plan your future income needs?

What is an SWP in a mutual fund?

A systematic withdrawal plan (SWP) is a facility offered by mutual fund companies. It allows investors to withdraw a fixed amount periodically from their mutual fund investments.

You can think of an SWP as the opposite of a SIP (systematic investment plan). In a SIP, you invest a certain amount in mutual funds at periodic intervals. Whereas in a systematic withdrawal plan, you withdraw a certain amount from your mutual fund investment at a regular interval.

You can use a systematic withdrawal plan for several purposes:

  • To get a regular income after retirement;
  • To make regular payments like EMI; or
  • For your child's education.

How SWP in mutual fund works?

To understand how SWP in mutual funds works, let us imagine that you have received a retirement corpus of Rs. 50 lakhs. Suppose you invest this amount in a debt fund and plan to withdraw Rs. 1,00,000 quarterly (every three months) for your household expenses.

What you are actually doing is buying mutual fund units at the NAV applicable on the date of purchase. So it means that if the current NAV of the mutual fund is say, Rs. 100, you will buy:

50,00,000 / 100 = 50,000

i.e., 50,000 units.

Out of these 50,000 units, you would redeem certain units per quarter to get the Rs. 1,00,000. So, if the annual return on your debt funds is 6%, it means that about three months after purchase, the NAV of your purchased mutual fund units is Rs. 101.48. To withdraw Rs. 1,00,000, you would need to sell:

1,00,000 / 101.48 = 985.416

i.e., about 985.416 units and you will be left with 49014.584 units worth about Rs. 49,74,000. This process will continue until you have exhausted all the balance available in your SWP.

How to use the mutual fund SWP calculator?

As you can see from the example in the previous section, keeping track of your SWP can be pretty cumbersome. So, now let us understand how you can use the systematic withdrawal plan calculator to do the same.

To check how long your SWP will last:

  1. From the drop-down menu, choose how long will my SWP last?

  2. Enter the initial balance of your SWP, i.e., Rs. 50,00,000.

  3. Type the amount you wish to withdraw at a regular period (Rs. 1,00,000) and choose the withdrawal frequency (quarterly).

  4. Input the expected rate of return on your investment (6%).

  5. The SWP calculator shows you how long your SWP will last (22 years and 9 months). It will also display a summary of your systematic withdrawal plan, i.e., total withdrawal (Rs. 91,00,000), the total return on your investment (Rs. 40,68,804), and the number of withdrawal possible (91).

  6. You can also check how your investment changes over the period using the given payment schedule and chart of balances.

To estimate how much initial investment you would need to plan your future needs:

  1. Choose the option what should be my initial investment?

  2. Input your requirements like how much, how often, and for how long you wish to withdraw.

  3. Type the expected annual return rate and the inflation rate.

  4. The mutual fund SWP calculator with the inflation option will tell you how much initial investment you need to make to meet your future expense.

Note: This systematic withdrawal plan calculator does not take into account exit load and expense ratio.

Benefits of systematic withdrawal plan

  • Regular cash-flow: You can get regular cash flow by opting for SWP. The mutual fund house will redeem specific units on your behalf to generate this income. The number of units redeemed depends on the SWP amount and the NAV of the scheme on the withdrawal date.

  • Captial appreciation: If you withdraw a lower amount than what you earn from the scheme, the value of your invested capital will appreciate in the long term.

  • Tax benefits: You will have to pay lower taxes on capital gains from SWP compared to other investment sources, and there is no TDS. In addition, if you invest in a debt fund for a holding period longer than 3 years, you can also adjust your gain for inflation.

  • Flexibility: You have the flexibility to choose withdrawal frequency, amount, and date as per your need.

  • Higher returns: If you choose the right mutual fund scheme, you will get a higher return on your capital than fixed deposits, recurring deposit, or post office monthly income scheme.

SWP calculator disclaimer

You should consider the SWP calculator as a model for financial approximation. All payment figures, balances, and interest figures are estimates based on the data you provided in the specifications that are not exhaustive despite our best effort.

For this reason, we created the calculator for instructional purposes only. Still, if you experience a relevant drawback or encounter any inaccuracy, we are always pleased to receive helpful feedback and advice.

FAQ

How does a systematic withdrawal plan work?

In a systematic withdrawal plan, you opt to withdraw a certain amount periodically from your mutual fund investments. This means that you are redeeming your mutual fund units corresponding to that amount at regular intervals.

Is a systematic withdrawal plan taxable?

Yes, the income, i.e., the capital gain realized from the systematic withdrawal plan, is taxable.

How to calculate the tax on an SWP?

To calculate the tax on an SWP, you need to keep the following points in mind:

  • Debt funds: If the holding period is longer than 3 years, the capital gains are taxed at 20% after adjusting for inflation. For a shorter holding period, the capitals gains are taxed according to your income tax slab rate.

  • Equity funds: For holding periods less than 1 year, the capital gains are taxed at 15%. For a holding period longer than 1 year, the capital gains are taxed at 10%.

Who can invest in a systematic withdrawal plan?

Anyone who wants a regular income either after retirement or for making any monthly payments like for a child's education should invest in a systematic withdrawal plan.

Tibor Pal, PhD candidate and Purnima Singh, PhD
I'd like to know...
what should be my initial investment?
Systematic withdrawal specification
How much?
$
How often?
Monthly
How long?
yrs
What rate of return do you expect?
%
Inflation rate
%
First withdrawal on...
Results
You should have an SWP investment of $94,674.19 to be able to make the specified withdrawals.
Opening balance$94,674.19
Monthly withdrawal$1,000.00
Total withdrawal$120,000.00
Total return$25,325.81
Number of withdrawals120
Last withdrawal onNov. 9, 2031
Display...
chart of balances
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