What is an SWP calculator?
Planning withdrawals manually from a mutual fund can be challenging. You need to make sure that your withdrawal amount is enough to meet your lifestyle requirements, but not so high that your funds run out too soon.
That’s where an SWP calculator helps. It’s a tool that lets you try out different scenarios—based on how much you’ve invested, how much you want to withdraw, how long you want to continue, and what return you expect.
By adjusting these values, the Systematic Withdrawal Plan calculator gives you a picture of how long you can potentially sustain your withdrawals based on the withdrawal amount and the potential growth of the balance corpus with each withdrawal. In this manner, the SWP mutual fund calculator can support enhanced planning.
How does an SWP calculator work?
When you enter details like your investment amount, withdrawal plan, and expected rate of return, the calculator gives you:
- The number of withdrawals you may be able to sustain
- The potential fund value at the end of your chosen period
This helps you understand whether your current plan is sustainable or if you need to change your withdrawal amount or duration.
For a more detailed view of your estimated outcomes, you can also use this SWP return calculator to compare different return scenarios.
What is the SWP calculator formula?
Each calculator may have a different formula depending on its features. However, the SWP formula is as follows:
A = PMT ((1+r/n)^nt-1)/(r/n))
Where:
'A' is the final value of your investment
'PMT' is the withdrawal amount per period
'n' is compounding frequency
't' is the investment duration
Consider this example:
Initial Investment amount: Rs. 10,00,000
SWP tenure: 5 years • Desired monthly withdrawal: Rs. 20,000
Expected Rate of Return: 12%
| Month |
Starting Balance (Rs.) |
Monthly Return (Rs.) |
Monthly Withdrawal (Rs.) |
Ending Balance (Rs.) |
|---|
| 1 |
1,000,000 |
9,488.79 |
20,000 |
989,488.79 |
| 2 |
989,488.79 |
9,389.05 |
20,000 |
978,877.85 |
| 3 |
978,877.85 |
9,288.37 |
20,000 |
968,166.22 |
| 4 |
968,166.22 |
9,186.73 |
20,000 |
957,352.95 |
| 5 |
957,352.95 |
9,084.12 |
20,000 |
946,437.07 |
| 6 |
946,437.07 |
8,980.55 |
20,000 |
935,417.61 |
| 7 |
935,417.61 |
8,875.98 |
20,000 |
924,293.60 |
| 8 |
924,293.60 |
8,770.43 |
20,000 |
913,064.03 |
| 9 |
913,064.03 |
8,663.88 |
20,000 |
901,727.90 |
| 10 |
901,727.90 |
8,556.31 |
20,000 |
890,284.21 |
Using the above formula, you will see that your final investment value at the end of your tenure will potentially be Rs 1.6 lakh (approx.) if growth happens along expected lines. However, mutual fund returns are not guaranteed and can fluctuate based on market conditions. A Systematic Withdrawal Plan calculator automates this process and gives you estimates in seconds.
How is SWP taxed?
SWP withdrawals are treated as redemptions from the perspective of taxation. Capital gains tax applies on profits (if any) on the sale of units. The tax rate depends upon the type of scheme you have invested in – equity or debt. Below, we give you an overview of the tax structure:
Equity-oriented funds: Mutual funds that invest 65% of their corpus or more in equities are taxed as equity-oriented funds. Units held for over a year are subject to long-term capital gains tax. Capital gains of up to Rs. 1.25 lakh in a financial year are tax-exempt and the remaining amount is 12.5%. For units held for less than a year, short-term capital gains tax applies. The tax rate is 20%.
Debt funds: These are funds that invest at least 65% of their corpus in debt instruments. All redemptions are taxed as short-term capital gains regardless of your holding period. Capital gains are taxed as per your applicable income tax slab rate.
SWP vs. SIP vs. lumpsum: Which investment strategy suits you?
After understanding the concept of SWP, you may be wondering how it differs from SIP and lumpsum, or which avenue is more suitable for you. The primary purpose of SIP and lumpsum is to build your corpus, while SWP is geared towards withdrawing money from it. So, in a sense, they cater to different goals. Here are some considerations:
SIP (Systematic Investment Plan): This allows investors to invest an affordable amount at regular intervals. It spreads the cost of the investment over time and mitigates market timing risk through rupee cost averaging. It is suitable for those who want to invest in affordable and consistent instalments over time.
Lumpsum investment: This is a one-time investment, typically suited for a large amount. This can be feasible for those who have surplus funds. It can yield higher potential returns in a rising market. However, market timing plays an important role, resulting in higher risk.
SWP (Systematic Withdrawal Plan): This is suitable for those needing regular income. So, the strategy that may work for you depends on your financial goals and cash flow needs. Investors may even combine both approaches to generate an income stream in the present while also investing for the future.
Before making any decision, you can run simulations using a Systematic Withdrawal Plan calculator to get a clearer picture.
Tax implications of systematic withdrawal plans
SWP is treated as a redemption for taxation purposes. So, withdrawals are subject to capital gains tax. The tax structure is as follows:
- Equity funds:
- Withdrawal of units held for more than 1 year: Taxed as long-term capital gains. LTCG of up to Rs. 1.25 lakh is tax-exempt. Thereon, the tax rate is 12.5%.
- Units held for less than 1 year: Taxed as short-term capital gains, at a rate of 20% with no exemptions.
- Debt funds:
- Deemed to be STCG and taxed as per the investor’s applicable income tax slab, regardless of the holding period.
Tax is calculated on a FIFO (first-in, first-out) basis – older units are sold first, and the holding period is determined accordingly. Since SWP involves withdrawals, careful planning can help reduce tax liability while facilitating potentially steady income.
All financial calculators by Bajaj Finserv AMC
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