SWP Calculator

About the SWP Calculator

The periodic cash flow over a certain period and balance left in investments are predicted by the Systematic Withdrawal Plan (SWP) Calculator with starting investment amount, monthly cash flow withdrawal, return, and years as inputs.

Key Features:

• Calculate monthly cash flow and remaining investment value
• Adjust inputs using sliders for an interactive experience
• View a detailed table with month-wise breakdown
• Visualize the SWP performance using a line chart

How to Use:

1. Enter your total one-time investment amount
2. Specify the desired monthly withdrawal amount
3. Input the expected annual return rate
4. Choose the tenure of withdrawal in months or years
5. Click the "Calculate" button to generate the SWP report

The SWP Calculator enables one to assess the performance of your investment vis-à-vis your desired tenure so that you can make informed decisions on your exit strategy.

How Does SWP Work?

The investor in an SWP specifies at inception the amount he or she wants to be withdrawn from the mutual fund (monthly, quarterly, semi-annually or annually), and what portion – either capital gains (the appreciation) or principal is to be paid out. The remaining balance is re-invested in the mutual fund. That re-investment will grow, should the market rise.

The SWP works in the opposite direction; it is a systematic withdrawal plan. And it’s a simple, low-tech process too: When you make a withdrawal, the quantity of units is reduced, and the amount paid to you depends on the NAV of the fund at that time. So, if the fund’s NAV is high, the fewer units are ‘redeemed’ to service your withdrawal request; and vice versa. This protects the principal to some extent.

The key feature of SWP is that it is customisable – an investor can withdraw a fixed amount every year, even after rolling over the STP installments or withdraw only the capital gains generated through SWP without touching the principal. This flexibility makes SWP a favourite among both debt and equity investors who are keen to not divert their funds whenever they have immediate cash needs.

Advantages of SWP

SWP comes with several advantages that make it a popular investment choice for investors from India:

• Regular Income: SWP provides a consistent income stream, perfect for someone in retirement or someone looking to supplement their regular cash flow.
• Tax Efficiency: SWP is a tax-fiendly systematic withdrawal plan from investment where only the capital gains part of the corpus/drawal is taxable. Now, taxation of mutual fund units is done as per the provisions of Securities Transaction Tax Act, 1994 by deducting tax at source (TDS) from payments made to the unitholders and other persons from whom securities transactions have been entered into. In India, long-term capital gains (LTCG) tax is 10% on equity mutual funds for gains exceeding ₹1 lakh per annum; short-term capital gains (STCG) tax is 15%. SWP can be utilised to effectively manage tax liabilities of the investors.
• Flexibility: the size of the annual withdrawal can be chosen by the beneficiary to match needs (for instance, be higher or lower if the couple plans to purchase residential property for their children, or be a minimum if post-retirement income is sufficient). Any remaining amount can be transferred to one or more other schemes or).
• Ongoing Appreciation: The account continues to earn interest, increasing the overall value of the investment over time. This would be most advantageous in a market that is on the rise, where market appreciation of the remaining investment could compensate for the withdrawals.
• Flexibility in Withdrawals: Unlike annuities, SWP gives you the option to draw down your investment at fixed or variable rates, allowing you to customise the plan as per your financial requirements and changing market conditions.
• Rupee Cost Averaging: Just as SIP enjoys rupee cost averaging, SWP helps in rupee cost averaging. SIP and SWP allows you to escape the volatility in terms of rupee cost averaging. Withdrawing money at fixed intervals is your best strategy to ensure you are protected from the ebb and flow of the market. Say you’re looking to invest Rs 12,000; and based on your equity funds, the shares might be going for Rs 1,000 per share. This will work out to you purchasing 12 shares.

Comparison with Other Investment Strategies

SWP is compared with other investment approaches, such as lumpsum investment and Systematic Investment Plans or SIPs. While SIP provides periodic investments through which wealth is generated over the investment period, SWP provides periodic payouts and is most suitable once one enters the disinvestment phase.

SWP vs. Lump Sum Investment: These two types of investment offer the following differences: A Lump Sum investment is one where you put money in the fund all at once. When the markets aren't good, you don't get good returns. But SWP is risk diversified where the withdrawals happen over time, thus decreasing the chances of you withdrawing your money in a bear market.

SWP vs. Systematic Investment Plan (SIP): The SIP is a better strategy for the corpus-creation or accumulation phase where small amounts can be invested at regular intervals over a long period. The SWP is used in the corpus-consumption or withdrawal phase, where the accumulated amount is drawn down in the same way as SIPs are invested.

The two are useful at different steps in an investor’s financial path. SIP is suited for a young investor looking to create a nestegg, but SWP is well suited for an investor in retirement looking to draw income from his/her investments.

Example of Systematic Withdrawal Plan

Below is an illustrative example of how an SWP might work:

Parameter	Details
Initial Investment	₹10,00,000
Monthly Withdrawal	₹10,000
Expected Return Rate	8% per annum
Duration	10 years
Total Amount Withdrawn	₹12,00,000
Remaining Balance (After 10 years)	₹6,58,946 (approx.)

Now look at how during the 10th year, although the investor can take out ₹12,00,000, the balance continues to build up with a return of 8 per cent p.a. SWP is a good option if you are an investor who does not need to withdraw from a fund quickly, and do not want to pay taxes while at the same time availing growth in the market.

Local Policies and Regulations Affecting SWP

All purchases/sales under the SWP scheme by the SWP investment policies in India are regulated by Statutory Regulations of two Government Departments viz, Securities and Exchange Board of India (SEBI) and Income Tax Department. SEBI looks after the asset under management of the mutual funds, such investments are governed by SEBI as per law and in the interest of the subscription of the investors. SEBI also holds the mutual funds as liable to pass on all charges, fees, commissions and expenses, if any, which are paid by such funds for the purposes of the investments by such mutual funds to the investor in case of SWP.

Second, an SWP is treated under the capital gains tax regime depending on the holding period of the units in the mutual fund. If the holding period is more than a year, then the classification would be under the long-term capital gains (LTCG) under which the taxibility would be at 10 per cent on the gains exceeding ₹1 lakh a year. If the holding period for the funds’ units is less than one year, then it would be under short-term capital gains (STCG) category, which would attract tax at 15 per cent.

Furthermore, almost all mutual funds in India have exit loads (charges that are levied on an investor if he/she redeems the units within a specific period) with many funds having an exit load of 1 per cent if the units are redeemed within one year of investment. However, many of them do not levy exit load on transactions through SWP, making it even more attractive.

Investors should also understand the impact of GST on mutual fund services. Goods and Services Tax (GST) is levied on the expense ratio of mutual funds, which, albeit indirectly, affects the yield on the investments. Though the GST has no impact on SWP withdrawals, it is one of the many components of the total cost along with the expense ratio and other charges that constitute the major cost in a mutual fund investment.

Summing up, SWP is one of the most effective and diversified withdrawal system from mutual funds investment. While it has a host of advantages such as timely income, tax efficiency and scope for growth, it makes for an ideal strategy from any senior citizen seeking to rely on a regular cash flow. Obviously, one should be well-versed with the local policies and regimes intelligently to use this system in a way that it helps them achieve their financial goals and ensure that they do not put their money at a higher risk.