Explained: How Can An SWP Calculator Assist You

Explained: How Can An SWP Calculator Assist You

If you are a real-time investor in mutual funds, you must be aware of the term SWP or Systematic Withdrawal Plan. The concept of SWP helps an investor to create a structured withdrawal mechanism at predetermined intervals. Under the SWP, an investor can customize his withdrawal plans and time his intervals for the withdrawals in a phased manner. To obtain the value of your withdrawal, you can either opt for an online SWP calculator or can even use a formula to obtain the results manually.

An SWP withdrawal is an excellent way for long-term investors in mutual funds to sustain a fluctuating market and create a regular income. The withdrawn money can help curb the financial needs of the investor and can even be retained to be invested in other viable schemes. It also acts as an optimal solution for retirement. Traditionally, retirees prefer a lump sum amount to be received during retirement but this may attract huge taxes. While SWP is a solid tax-efficient way if one wishes to earn regular income on retirement. Hence, adding to the advantage of capital appreciation.

Also, employees with numerous family responsibilities can opt for SWP as a certain option to fulfill the required additional income. And thus can release the financial burden that comes with high-end planning of financial needs such as travel, education, etc. 

What is an SWP Calculator?

SWP calculator is an efficient tool that helps to calculate the total value that an investor needs to withdraw as per the required scheme. To obtain this, the investor needs to fill up the necessary details like the final investments, the amount that can be withdrawn, the expected rate of return, and the tenure. The calculator shall then automatically show the results. This is how an online SWP calculator works. There are various web-based SWP calculators that an investor can conveniently use to obtain the calculation immediately.

An online SWP calculator provides you with the following benefits;

  • An online SWP calculator can perform the most complex calculations within a matter of seconds.
  • It provides you with accurate results in terms of the interest earned as well as the total future value of your investment at the given tenure.
  • It is easily accessible and available online on various platforms.
  • It does not require any specialized skills, just the basic information about your investments required.
  • It helps the investor to find the optimal investment strategy and reach his financial goals very conveniently.

How to Calculate the SWP manually?

To calculate the future value of your investment manually by using a formula, let us take the following example: 

Assume an investor X has invested ₹ 2,00,000 in a mutual fund scheme for about 5 years. This shall provide an estimated rate of return of about 10 %. 

This can be calculated by using the formula given below to obtain the future value of an investment:

 We have, 

We can obtain the future value = present value (1+r/100)^n, now the present value as mentioned is ₹2,00,000. Here, R i.e. estimated rate of return is equal to 10% =10/100 = 0.1.

Now, N implies the duration of the investment i.e. 5 years. 

By using the required formula we can calculate the future value as,

  • FV= 2,00,000 (1+10/100)^5
  • FV = 2,00,000 (1.01)^5
  • FV= 2,00,000 (1.295)
  • FV= ₹2,59,000

Here, the future value of the investment can be accounted for as ₹ 2,59,000. With the initial investment of ₹2,00,000 in 5 years. However, this formula lacks the basis for taking the withdrawal amount into account. To calculate the withdrawal amount a more complex formula is given that is used for the purpose. i.e. FV = PMT [(1+r/n)^nt-1)/(r/n)]

As we can witness, using a manual formula shall be tricky and highly complicated as well as time-consuming, therefore to obtain quicker and more accurate results, it is always suggested to go for an online SWP calculator.

Ishat Narain