What Is SWP In A Mutual Fund?

Aug 17, 2022

What Is SWP In A Mutual Fund?

Investors can use the SWP tool to withdraw their investments in a planned manner. The investor can choose the withdrawal amount and frequency. SWP is a fantastic choice for generating a consistent income.

SWP can be used by retirees and those with numerous dependents as a reliable source of income. The SWP calculator aids in estimating the eventual value of an investment after repeated withdrawals of a fixed amount while taking interest collected into account.

What Is A SWP In A Mutual Fund?

SWP stands for Systematic Withdrawal Plan and it is a mutual fund. An SWP enables an investor to make periodic withdrawals from the mutual fund they have invested in.

Investors have the choice to withdraw their money gradually rather than all at once (lump sum withdrawal). One can choose their withdrawal amount and frequency in an SWP. For example, investors can withdraw their capital gains or a predetermined amount every month, quarter, half-year, or year.

SWP is a preferable choice in volatile markets. This is because investors can make partial withdrawals while continuing to invest in mutual funds. As a result, investors receive a set, consistent income from their investments.

Investors can use the SWP option to generate a second income source in addition to their primary source of income to suit their demands. SWPs are helpful when an investor gets close to achieving a goal and requires money to do so. The investors can retain or reinvest the withdrawn funds according to their needs.

The SWP calculator calculates the remaining investment value following withdrawals. Therefore, to calculate the amount needed for their financial needs, one can utilize the SWP calculator.

How Does the SWP Work?

A Systematic Withdrawal Plan (SWP) works oppositely to a Systematic Investment Plan (SIP). A SIP allows investors to gradually increase the number of units they own in a mutual fund by investing a specific amount regularly. In SWP, the investor periodically withdraws a sum, reducing the number of units held in the mutual fund.

Regular withdrawals of a set amount of money cause the investment to lose a specific number of units. As a result, the amount invested in the mutual fund decreases in line with the number of units withdrawn.

How to use the SWP calculator?

The SWP calculator is very simple to use. The SWP return calculator will handle all the calculations and produce the Final result after you enter the relevant information in the fields.

Type the following information in

  • Your investment amount 
  • Monthly withdrawal amount: The amount you wish to receive each month
  • returns (%): Rate of interest offered by the scheme. 
  • Tenure: The period over which you intend to make period withdrawals.

These factors will be used to calculate the investment’s final value.

Assume you have invested INR 50,000 in an SWP plan with a rate of interest of 10% per annum for one year. You have decided to withdraw INR 1,000 every month. At the end of the first month, your account will have the principal and the interest accrued in that month. When you make your monthly withdrawal, INR 1,000 will be deducted from your account balance. The remaining amount will continue accumulating interest. 

Your monthly interest rate is 0.833% (0.00833 in decimals). At this rate, the interest earned by you in the first month will be INR 408. Adding this to this initial investment, your account will have INR 50,408. Deducting INR 1,000, it will have INR 49,408 at the beginning of the second month. This amount will earn an interest of INR 403 in the second month.  At the end of your tenure of one year, your investment’s total accrued interest will be INR 4,563. The balance amount left with you after this period will be INR42,563. This process will go on until the end of one year, as represented by the table below.

Month Balance at the Beginning (INR) Withdrawal Amount (INR) Interest Earned

(INR)

1 50,000 1,000 408
2 49,408 1,000 403
3 48,812 1,000 398
4 48,210 1,000 393
5 47,604 1,000 388
6 46,992 1,000 383
7 46,375 1,000 378
8 45,753 1,000 373
9 45,126 1,000 368
10 44,494 1,000 362
11 43,856 1,000 357
12 43,214 1,000 352

 

How Does The SWP Calculator Work?

An SWP calculator quickly completes complicated calculations. First, enter the values for the investment amount, monthly withdrawal amount, tenure, and mutual fund returns. The value of your invested money at the end of the tenure will be presented.

How Can an SWP Calculator Help You?

Calculating the ultimate maturity amount at the end of the investment tenure, considering the monthly withdrawal amount, is simple with the SWP calculator. However, making all the computations by hand gets tiresome. Therefore, to obtain accurate calculations, an SWP calculator will be of great use.

A consistent monthly income is the main reason to choose an SWP. Senior and retired investors like this choice very much. The following are the advantages of an SWP calculator:

  • The SWP calculator is easy to use and does not call for any specialized knowledge. The investor only needs to enter the variables in the appropriate fields; the calculator will do the rest.
  • Investors can use the SWP calculator to calculate the maturity amount by entering different withdrawal amounts. This makes it easier for the investor to select the monthly withdrawal amount that works best for them.
  • Online SWP calculators are easily accessible.

When Should an Investor Opt for an SWP?

In retirement, a Systematic Withdrawal Plan is the best option. By investing in SWP, retirees can benefit from consistent income and capital growth.

SWP works for people with family responsibilities, who need additional income. A few reasons why people should select an SWP are their children’s education, travel requirements, and financial goals that are getting close to being met.

What Are The Benefits of SWP?

The main benefit of the Systematic Withdrawal Plan (SWP) is a steady fixed income. It provides additional money for employees. To achieve their financial objectives, SWP can be a reliable source of income when planned. Long-term capital gains up to INR 1 lakh are tax-free, while gains beyond INR 1 lakh are taxable. Hence, SWP provides a tax-efficient investment opportunity. 

Other Investment Alternatives 

To expand your portfolio, it is always a good idea to consider various investment alternatives. Thus, your risk is reduced, and your rewards are maximized. You can make investments in safer options like fixed deposits and government bonds. Consider investing in stocks if you have a high-risk tolerance. One of the rapidly growing investment opportunities made possible by technology is P2P lending. The fixed maturity peer-to-peer investment plan from LenDenClub offers annual returns of up to 10–12%* p.a. on your investment. 

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