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What is an SWP Calculator and How Does It Work?

Introduction 

A Systematic Withdrawal Plan (SWP) is a method of withdrawal that allows you to take out money from your mutual fund investments. An SWP will enable you to set a frequency and amount for withdrawal. For instance, consider a scenario where a mutual fund investment is currently valued at Rs 20 lakh. You need a regular source of income for your monthly expenses. In this case, you can set an SWP of Rs 20,000. Each month Rs 20,000 will be deducted from your mutual fund investment and transferred to your bank account. The remaining money will stay invested in the scheme until you withdraw all your funds.

SWP can be a convenient way to withdraw your investment returns while letting the rest of the money stay invested for future growth. However, determining the right amount for the withdrawal can be confusing. In such a case, an SWP calculator can rescue you and help you calculate the correct sum for your needs. Keep reading to understand how this tool works and the benefits it offers. 

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What is an SWP calculator?

An SWP calculator is an online tool that helps you calculate the amount for your withdrawal from a mutual fund scheme. It considers factors such as the total investment amount, the withdrawal amount, the rate of return, withdrawal frequency, and the total number of years for the withdrawal plan. Based on your inputs, the calculator reflects the balance of your investment after your withdrawals and the rate of return you can earn on the remaining money still invested in the scheme.

How does the SWP calculator work?

Calculating SWPs can be a bit complex. When you invest in a mutual fund scheme, you buy the scheme's units. For instance, if the scheme's Net Asset Value (NAV) is Rs 10 and you invest Rs 2000, you will get 200 units. The same concept is applied when you withdraw funds. If you create an SWP of Rs 5000, each unit being Rs 10, you will redeem 500 units in every withdrawal. The remaining balance will be affected by the value of your withdrawal and the number of units withdrawn. For instance, if the NAV changes to Rs 20 next month, with an SWP of Rs 5000, you will redeem only 250 units.

While this can seem a bit hard to comprehend, the SWP calculator simplifies this calculation by using the following formula:

A = PMT ((1+r/n)^nt – 1) / (r/n))

Here,

  • A is the future value of the investment
  • PMT is the payment amount for each withdrawal
  • N is the number of compounds in a period
  • T is the number of years for which the money is invested

How to use the SWP calculator?

Here are the steps to use the SWP calculator:

  • Enter the total investment value of your mutual fund scheme
  • Enter the withdrawal amount you need every month
  • Enter the expected rate of return offered by the mutual fund scheme
  • Enter the specified time for the withdrawal
  • Click on calculate

The calculator will display the outcome, and you can check the impact of your withdrawals on your investment returns.

What are the benefits of using the SWP calculator?

Here are some advantages of using the SWP calculator:

  • Quick and easy: The calculator is simple to use and instantly displays the outcomes. Anybody can use the tool if they have a stable internet connection.
  • Accurate results: Calculating your returns and understanding how your withdrawal affects your investment can be tricky with many variables involved. The SWP calculator can help you accurately ascertain the impact of your withdrawals and make informed decisions.
  • Future planning: The SWP calculator can help you evaluate different withdrawal options and scenarios by comparing various parameters. This way, you can try out different figures and determine the best course of action for your future financial well-being.

To sum it up

SWP can be a great way to generate a regular income stream from your mutual fund investments while still benefiting from potential market growth. However, to ensure that you make the best judgment, getting an honest and comprehensive insight into your decision is essential. The SWP calculator can accurately depict how your mutual fund investment can grow with regular withdrawals. It can also help you understand how long you can comfortably withdraw from a scheme. This information can be instrumental in financial and investment planning.

 

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