SWP Calculator - Systematic Withdrawal Plan Calculator

How Does the SWP Calculator Work?

To accurately project the sustainability of your funds, an SWP calculator performs a month-by-month simulation rather than using a direct formula.

The formula for calculating the SWP is:

A = PMT × [((1 + r/n)^(nt) – 1) / (r/n)]

Where,

• A = Future value
• PMT = Payment per period
• r = Annual interest rate
• n = Compounding periods per year
• t = Number of years

Furthermore, here is the step-by-step process the SWP calculator uses to calculate interest each month:

• The calculation begins with your total investment amount.
• Your fixed monthly withdrawal amount (PMT) is deducted from the balance.
• The expected rate of return is then calculated on the remaining corpus for that month.
• This adjusted amount becomes the opening balance for the next month.

This cycle repeats for the entire investment tenure, allowing you to see how your regular withdrawals impact your principal and how continued market growth can help your capital last longer.

Example of Systematic Withdrawal Plan

Let us understand how the SWP calculator calculates your finances with a step-by-step example:

Consider the following scenario:

• Total Initial Investment: ₹2,00,000
• Desired Monthly Withdrawal: ₹10,000
• Withdrawal Period (Tenure): 1 Year
• Expected Annual Return: 9%

Here is how the calculator processes this information each month:

Month 1: The Initial Withdrawal The process starts with your principal amount. First, interest is earned on the balance, and then
your fixed withdrawal is deducted.

• Opening Balance: ₹2,00,000
• Interest Earned (for the month): ₹2,00,000 x (9% / 12) = ₹1500
• Balance before withdrawal: ₹2,01,500
• Amount Withdrawn: - ₹10,000
• Closing Balance: ₹1,91,500

Month 2: Compounding on the Remaining Capital
The same calculation is repeated, but now the interest is calculated on the new opening balance.

• Opening Balance: ₹1,91,500
• Interest Earned (for the month): ₹1,91,500 x (9% / 12) = ₹1436.25
• Balance before withdrawal: ₹1,92,936.25
• Amount Withdrawn: - ₹10,000
• Closing Balance: ₹1,82,936.25

This cycle of earning interest and deducting withdrawals continues for the entire tenure.

Summary of the Year
The following table provides a complete overview of the 12-month period:

How to Use the SWP Calculator?

Using a SWP calculator online is very easy, even if you are an inexperienced person when it comes to investing. Just follow these simple steps, and you will get an idea of how your money will grow and how much you can withdraw over time.

Enter Your Investment Amount: To begin with, type in the total amount of money you plan to invest in the mutual fund.

Specify Your Withdrawal Amount and Frequency: Decide how much money you would like to withdraw and how often (monthly, quarterly, or yearly).

Provide the Investment Duration: How long do you want to keep your investments running? Is it a few years or more? Think about it and specify the total number of years or months you plan to keep the SWP active.

Enter the Expected Rate of Return: This is the estimated percentage your mutual fund is expected to generate every year. Enter the anticipated annual return percentage for your mutual fund. You can check past performance to get an idea.

Calculate the Results: Click the “Calculate” button, and the tool will show you how much money you will get, how much will be left, and how your investment will perform over time.

Benefits of SWP Calculator

Unlike Systematic Investment Plan (SIP), SWP allows you to withdraw funds for particular reasons like children’s education, vacations, or medical expenses. This makes it easier for you financially. The SWP calculator can help you with the following:

Easy Retirement Planning: Depending on your needs, the best SWP calculator lets you know how regularly you can withdraw money from your investment without depleting your resources. It is like crafting a set income stream for your retirement years.

Financial Forecasting: The calculator helps you understand how much money you are going to earn and lose over a span of a few years. You can experiment with how different withdrawal amounts will affect your total corpus and make better decisions about your finances as a result.

Protection Against Inflation: A SWP calculator with inflation is useful because you can use it to figure out how much money you can take out without losing value due to inflation. This means a portion of your regular income can be set to always equal its real worth, thus protecting you from an increase in living expenses.

Customized Withdrawal Strategies: Instead of the conventional life insurance or fixed-income plan, with a SWP calculator, you can choose your withdrawal amount. When you find some months bear more expenses than others or wish to receive a fixed income, you can plan accordingly.

Risk Management: The calculator helps you manage investment risks by showing potential scenarios. You can see how different withdrawal rates might impact your long-term financial health and make wiser choices.

Simple Visualization: Most SWP plan calculators provide easy-to-understand graphs and charts. This makes complex financial planning visual and comprehensible, even for those not well-versed in financial terminology.