How is a Systematic Withdrawal Plan (SWP) calculated?

The Systematic Withdrawal Plan or SWP is a withdrawal method that offers you a regular income. Under this system, you can invest in a lump sum in mutual funds online. Post this, you can fix an amount and choose the frequency according to which you can withdraw it. It is the opposite of a SIP (Systematic Investment Plan), where you invest a fixed sum at a chosen frequency.

Let’s find out more about SWP, and you can calculate it for your investments.

How to calculate the SWP?

When you choose the SWP, you can select the frequency and amount that you want to withdraw. For instance, if you want to withdraw Rs. 10,000 every month, the mutual fund house will calculate this amount based on the total units in the scheme and the current NAV (Net Asset Value) of each unit. So, if the NAV is Rs. 10, you can withdraw Rs. 10,000/Rs. 10 = 1,000 units at a time. However, if the NAV changes to Rs. 20, you can withdraw Rs. 10,000/Rs. 20 = 500 units at a time.

The monetary value of your withdrawals from mutual funds online will remain the same as fixed. However, the number of units will differ and your remaining balance will get affected accordingly. So, if you get 1,000 units, your balance after the first withdrawal would reduce by 1,000. After the second withdrawal, it would reduce by 500.

Another important point to note is that your remaining investment does not lie ideal but is further invested by the fund house, as in the case of a typical SIP. So, say you have a balance of Rs. 1,00,000 and while you withdraw Rs. 10,000, the remaining Rs. 90,000 will be invested in the market as per the mutual fund’s goals and type.

How else can you calculate the SWP value?

Apart from the above method, you can also use an SWP calculator. Manual calculations can take time. They can also lead to errors in judgment if you make a mistake. To avoid these hassles, you can consider using an SWP calculator. This is a simple online tool that computes the value of your SWP and reflects the future value of your investments in mutual funds online. All you need to do is enter the total investment amount in the scheme, the expected rate of return (per annum), and the withdrawal amount. In addition to this, you also have to select the frequency of the SWP, such as monthly, quarterly, or yearly. The SWP calculator will provide you with an estimate in a matter of a few seconds.

To sum it up

The SWP method can be a great way to build wealth while maintaining liquidity and catering to short-term financial requirements. However, it is important to calculate it efficiently to avoid any issues or to prevent stalling the growth of your money. You can use the SWP calculator or use the method given above to ascertain the right amount for your withdrawals. Furthermore, you can also browse through the Tata Capital Moneyfy App and pick mutual fund schemes for your varied goals.