In this article we will address various queries like How SWP works, SWP Calculator using excel, What is SWP Plan in Mutual Fund, best mutual funds for SWP, SWP Calculator with Inflation and how returns will be calculated on mutual fund SWP.
SWP full form is Systematic Withdrawal Plan and if you have lump sum investment amount, you can invest it in mutual funds and set a withdrawal amount to be received every month that will help you meet your monthly expenditures. The amount you invested in mutual fund will help you gain profits over longer run based on mutual fund’s returns. We will see how SWP Calculator with Inflation works with the help of excel examples which will aid us for our retirement planning as well.
Mutual Fund SWP is a way to invest in mutual funds and is a reverse process of SIP. In SIP you invest a predefined amount every month and accumulate planned corpus in mutual fund helping you to reach your retirement goal, whereas, in SWP, you invest a lump sum investment and withdraw specific amount every month to meet your monthly expenses, and can be treated as a post retirement process. SWP Calculator with Inflation can help us in retirement planning.
Note: You can find the SWP Calculator in Excel at the bottom of this article
- SWP Calculator with Inflation Video
- What is SWP Plan in Mutual Funds
- How SWP Works – Example
- SWP Calculator with Inflation
- Best Mutual Funds for SWP
- SWP vs SIP vs STP
- Some more Videos
- Download SWP Calculator Excel
- Frequently Asked Questions (FAQs)
SWP Calculator with Inflation Video
In above video we see how SWP works and how we can beat inflation with SWP plan in mutual funds using 4% rule.
4% rule is a very popular rule in investing:
4% RULE – If you only withdraw 4% of your invested amount every year from a good mutual fund, you can beat Inflation by using the monthly income to meet your expenditures and also retaining your principal amount invested at same levels.
What is SWP Plan in Mutual Funds
- SWP stands for Systematic Withdrawal Plan. It is a way to invest in mutual funds just like how we invest in SIP (Systematic Investment Plan)
- In SIP we invest a predefined amount in a mutual fund and accumulate huge corpus to achieve our goal. Whereas in SWP, we already have a lump sum amount and we withdraw pre defined amount after investing lump sum amount in mutual fund
- SWP is best suited for those who have accumulated good corpus of amount and want some regular monthly income
- There are many good mutual funds you can invest in to get good returns on SWP
ALSO READ: Best Mutual Funds to Invest in 2022
How SWP Works – Example
Let’s understand SWP with an example. Let’s say you have Rs. 1,20,000 to be invested in mutual funds via SWP. You select a good mutual fund based on this article and invest entire amount of Rs. 1,20,000.
We get returns based on expected returns of the mutual fund we invest:
1. Expected Return = 10% per year:
As seen above, you withdraw Rs. 10,000 per month for 12 months to get your principal amount of Rs. 1,20,000, and also you are left with Rs. 6909.89 after 12 months which is your profit from this investment with expected return = 10% per year.
2. Expected Return = 12% per year:
As seen above, you withdraw Rs. 10,000 per month for 12 months to get your principal amount of Rs. 1,20,000, and also you are left with Rs. 8393.97 after 12 months which is your profit from this investment with expected return = 12% per year.
3. Expected Return = 15% per year:
As seen above, you withdraw Rs. 10,000 per month for 12 months to get your principal amount of Rs. 1,20,000, and also you are left with Rs. 10,686.93 after 12 months which is your profit from this investment with expected return = 15% per year.
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SWP Calculator with Inflation
- It is important to understand how Inflation works today, and will continue to work in future
- Inflation means increase in the value money of various things. Example – A cup of Coffee that costs you Rs. 50 today will cost you Rs. 100 few years from today
- In the same way, we need to adjust our investments to match with Inflation. Value of Rs. 1,00,000 today will not be same 5 years or 10 years down the line. So here comes the less popular rule of 4% as mentioned above
- Based on 4% rule – You withdraw only 4% of your total invested amount every year that will help you beat inflation by covering your monthly expenses and retaining your entire principal amount as well
- For example, let’s say your monthly expenses are Rs. 10,000, and if you invest Rs. 30,00,000 in SWP plan of mutual fund, here is how the calculation looks like:
As seen above, with expected return = 10% per year, you get Rs. 10,000 as monthly income to meet your monthly expenditures and also the total amount after 12 months is Rs. 31,88,483.52, which in fact increased from Rs. 30,00,000 of your initial investment.
That’s how we beat Inflation by getting monthly income and without doing anything!
ALSO READ: Step up SIP Excel Calculator [VIDEO]
Best Mutual Funds for SWP
It is important to know which are the Best Mutual Funds we should invest in to get good returns over long run. So here is a small list I have compiled for you (don’t take this as a must mutual fund to invest in and it is not a advice but just a study of some mutual funds over last years):
1. MOTILAL OSWAL NIFTY MIDCAP 150 INDEX FUND
- This fund belongs to Mid cap category
- Currently it has an Expense Ratio of 0.21% which is very low compared to other active Mutual Funds
- The total AUM (Asset Under Management) is Rs. 367 Cr
- The 2 year returns in this mutual fund is 41.55%
2. HDFC INDEX FUND SENSEX PLAN
- This fund belongs to Large cap category
- Currently it has an Expense Ratio of 0.20% which is the least in all the mutual funds we discussed in this post
- The total AUM (Asset Under Management) is Rs. 2,651 Cr
- The 3 year returns in this mutual fund is 20.63%
3. AXIS GROWTH OPPORTUNITY FUND
- This fund belongs to Large & Mid cap category
- Currently it has an Expense Ratio of 0.51% which is less than Mirae Asset Emerging Bluechip fund mentioned above in same category
- The total AUM (Asset Under Management) is Rs. 4,680 Cr
- The 3 year returns in this mutual fund is 31.22%
4. AXIS SMALL CAP FUND
- This fund belongs to Small cap category
- Currently it has an Expense Ratio of 0.38% which is pretty low for a small cap fund
- The total AUM (Asset Under Management) is Rs. 7,303 Cr, so a lot of people also invests in this fund
- The 3 year returns in this mutual fund is 35.16%
5. MIRAE ASSET EMERGING BLUECHIP FUND
- This fund belongs to Large & Mid cap category
- Currently it has an Expense Ratio of 0.68%
- The total AUM (Asset Under Management) is Rs. 21,263 Cr which is highest out of the 5 mutual funds we will see in this post
- The 3 year returns in this mutual fund is 29.46%
Best Large Cap Mutual Funds Video
SWP vs SIP vs STP
- As mentioned above, SIP (Systematic Investment Plan) is a way to invest in mutual fund with the help of predefined amount to achieve a goal of predefined corpus amount.
- SWP (Systematic Withdrawal Plan) is a way to invest in mutual fund by investing already existing corpus of amount and withdrawing amount every month to meet month expenses or treat it as monthly income
- STP (Systematic Transfer Plan) is a way to invest in mutual fund, by transferring amount from a existing mutual fund (Debt or liquid fund) to another new mutual fund (Equity fund). This is done to take advantage of rupee cost averaging from equity mutual fund which are more volatile compared to Debt or Liquid funds
- Let me know in comments if you want to understand STP (Systematic Transfer Plan) in more detail with the help of a video.
Some more Videos
You can Download SWP Calculator in excel from above link.
Frequently Asked Questions (FAQs)
- How does a Systematic Withdrawal Plan work?
Ans. A Systematic Withdrawal Plan(SWP) works in an opposite way to Systematic Investment Plan(SIP).A Systematic Investment Plan(SIP) allows an investor to invest a fixed amount at pre-determined intervals and a Systematic Withdrawal Plan(SWP) is a facility which allows an investor to withdraw a fixed amount at pre-determined intervals. The investor can choose the amount, the frequency and the duration of the SWP according to his needs. Withdrawals through SWP are subject to Exit Load as applicable.
- When do I use a Systematic Withdrawal Plan?
Ans. An investor can use a Systematic Withdrawal Plan when he wants to have a regular cash flow from his investments. The need for a Systematic Withdrawal Plan differs for every person. SWP can be useful for child education, paying EMI’s, retirement etc.
- Who can choose to invest in a Systematic Withdrawal Plan?
Ans. Any person who has invested in any Mutual Fund open-ended schemes can choose to start a Systematic Withdrawal Plan for a regular cash flow subject to lock-in period, if any.
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