SWP (Systematic Withdrawal Plan) Calculator
Many investors, usually retired individuals, seek regular income from their investments. This means they wish to contribute a lumpsum and withdraw money periodically, typically monthly. This is similar to the annuity. Systematic Withdrawal Plan (SWP) helps you achieve the same.
What is a SWP?
SWP plan is a mode of investing where you can withdraw a predetermined amount periodically, usually monthly. This withdrawal happens by selling the units or stocks of your investment portfolio. So, you first need to invest a lumpsum amount in the desired investment avenue and then opt for the SWP option.
What is the SWP Calculator?
A Systematic Withdrawal Plan, or SWP calculator is a tool that helps you to determine the amount left at maturity despite regular withdrawals. This also shows you the total investment, total withdrawal for the period, and the final amount left after maturity. This calculator helps you plan your withdrawals and understand what amount you need to invest and what amount would be left at maturity. SWP calculator is a very simple tool with which you can manage your cash flow and create sustainable income streams.
What is the SWP Calculator Formula?
The SWP calculator uses the following formula:
MV = PMT ((1+r/n)^nt-1)/(r/n))
Where:
MV = Maturity value.
PMT = Periodic withdrawal.
n = Compounding frequency.
t = Investment duration.
r = expected rate of return.
How Does the SWP Calculator Work?
Using the SWP calculator is pretty straightforward. To get the desired result, you need to provide the below-mentioned inputs:
- Your initial investment amount.
- Your investment tenure
- The assumed rate of return (p.a.)
- Your desired monthly withdrawal amount.
Once you enter the above details, the SWP calculator calculates the estimated maturity value assuming your desired withdrawal.
How to Use the Purnartha SWP Calculator?
It is easy to use the Purnartha SWP calculator. You just need to input the following:
- Total Investment
- Withdrawal Per Month
- Expected Rate of Return (p.a.)
- Investment Duration (years)
The calculator will instantly show the Total Investment, Total Withdrawal, and Final Value. The results help you in planning your cashflows and retirement. You can tweak the inputs to understand what suits you.
Advantages of SWP Calculator
There are several advantages or benefits of using the online SWP calculator. We have listed a few of them below:
The online SWP calculator helps you evaluate the withdrawal amount and frequency. With this, you can plan your financial goals with more accuracy.
Using the online SWP calculator provides you with the final maturity value adjusted for periodic withdrawals. This helps you understand whether or not your investment is sustainable.
The online SWP calculator also helps you to optimise your cash flow or retirement cash flow. You can achieve this by adjusting the withdrawal amount, expected rate of returns, and investment duration.
Tax Implications of SWP?
The SWPs are taxed based on their holding period. According to the Income Tax Act, there are two types of capital gains - long-term and short-term capital gains. And this is different for equity and debt investments.
For equity: Any gain from equity investments held for more than 12 months is considered long-term capital gains and is taxed at the rate of 12.5% on gains above ₹1.25 lakhs. If you sell your equity investments before 12 months, then it is categorised as short-term capital gains and will be taxed at the rate of 20%.
For debt: Any gain from debt investments held for more than 24 months is considered long-term capital gains. If you sell your debt investments before 24 months, then it is considered as short-term capital gains. Both long and short-term capital gains are taxed as per the individual tax slabs.
Things To Keep In Mind Before Investing In a SWP
While you opt for SWP you need to ensure the below-mentioned pointers:
- Before you choose SWP mode, you should have enough investment corpus so that your regular withdrawals and principal amount remain unaffected.
- You need a prudent asset allocation to continue generating income while preserving capital.
- While considering the investment horizon, consider aligning it with your withdrawal frequency and amount to maintain regular income.
- You should consider the impact of market volatility as it can impact your overall returns and corpus sustainability. Hence, you must assess your risk tolerance level and tweak your withdrawals accordingly.
SWP Calculator Frequently Asked Questions (FAQs)
What is the 4 rule for SWP?
The 4% SWP rule says that in the first year of your retirement, you should withdraw 4% of your investment corpus and in the subsequent years you need to withdraw the same amount irrespective of the investment corpus. However, there is an unsolved debate among the experts as some prefer the 3% rule over the 4% rule for SWP.
Is SWP better than FD?
Choosing between fixed deposits (FD) and SWP is like comparing apples with oranges. If your risk tolerance is low and you need a fixed regular income without the risk of losing your principal, then FD might be right for you. However, if your risk tolerance level is moderate to high while seeking withdrawal for long periods, then SWP is for you. Also, SWPs are way more flexible than FDs.
What is SWP 10 lakh withdrawal plan?
Say you invest ₹10 lakh in an investment avenue offering a 15% expected rate of return for 10 years, then you can opt for SWP where you can withdraw ₹10,000 every month. Despite this, at the end of 10 years, you will be left with ₹16.9 lakh.
Is SWP tax-free?
This depends on your asset allocation. The SWP can only be tax-free, if you have an equity-only portfolio and your gains after withdrawal is less than ₹1.25 lakh.