SWP Calculator with Inflation - Systematic Withdrawal Plan

SWP Calculator with Inflation helps you to know how much amount you can withdraw every month while keeping your balance above your deposit.

In SWP, we invest lump sum amount that is accumulated, and withdraw specific amount every month to meet our expenses. While doing so, the balance in the mutual fund that we invest in, gives us returns based on market conditions.

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Share this SWP calculator with your friends and family members so that they can calculate the returns they can get via Systematic Withdrawal Plan while enjoying the benefits of mutual fund returns.

ALSO READ: Types of Mutual Funds in India

What is SWP?

SWP or Systematic Withdrawal Plan is a method to withdraw consistently every month from a mutual fund that you want to invest in
Basically, it is the reverse of SIP. In SIP (Systematic Investment Plan), you invest some amount every month to accumulate desired corpus by the end of tenure
In SWP, you can keep the same accumulated amount in that mutual fund (or other mutual fund) and withdraw consistently every month, while the accumulated units in mutual fund earns you more profits
SWP helps you to earn regular income after your retirement to meet your needs.
It is similar to Post Office Monthly Income Scheme Plan, in which you earn regular income based on fixed interest rate
The only difference is in Post Office, the interest rate is known, where as in SWP, returns from mutual funds are not known. But over long term, market usually gives better returns if invested in good mutual funds
You can provide the expected returns in your mutual fund in above calculator, after adjusting inflation, and know the every month withdrawal amount and remaining amount after specific time period

ALSO READ: Rs. 1000 in Mutual Funds for 1 to 15 Years

SWP Calculation in Excel Video

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How SWP works?

As mentioned above, for your accumulated balance in mutual fund, you get returns based on fund performance
You can select the amount you want to withdraw every month from this mutual fund
Higher the withdrawal amount, it is more likely that your fund balance will come close to zero if every month returns are not more than the withdrawal amount
It is advised to keep the withdrawal amount based on your needs and less than the returns provided, so that your balance in mutual fund is maintained at same level

Let us take an example for SWP calculation:

SWP Example 1

Mutual Fund Balance = Rs. 20,00,000
Expected returns = 12%, which means average monthly returns = 1% (after adjusting with inflation)
Withdrawal amount = Rs. 15,000

So for above data, below is the table showing returns, balance and withdrawal amounts for first five months:

Months	Balance	Profits (1% per month)	Withdrawal	Updated Balance
1	₹ 20,00,000	₹ 20,000	₹ 15,000	₹ 20,05,000
2	₹ 20,05,000	₹ 20,050	₹ 15,000	₹ 20,10,050
3	₹ 20,10,050	₹ 20,100	₹ 15,000	₹ 20,15,151
4	₹ 20,15,151	₹ 20,151	₹ 15,000	₹ 20,20,302
5	₹ 20,20,302	₹ 20,203	₹ 15,000	₹ 20,25,505

SWP Calculation with Inflation

So as seen above, the updated balance is increasing with time since the withdrawal amount is set based on the needs and your monthly expenses, that are lower than the returns you are getting from market.

Note that mutual fund returns are volatile in nature and is not consistent on short term. But for long term it gives returns around 10-15% if investing for more than 5 years. For simplicity in calculation purpose, we have considered 1% monthly average returns from market.

Let us take another example where withdrawal amount is more than the returns you get from mutual fund.

Example 2

Mutual Fund Balance = Rs. 20,00,000
Expected returns = 12%, which means average monthly returns = 1% (after adjusting with inflation)
Withdrawal amount = Rs. 30,000

Below is the table showing returns, updated balance and withdrawal amounts for first five months:

Months	Balance	Profits (1% per month)	Withdrawal	Updated Balance
1	₹ 20,00,000	₹ 20,000	₹ 30,000	₹ 19,90,000
2	₹ 19,90,000	₹ 19,900	₹ 30,000	₹ 19,79,900
3	₹ 19,79,900	₹ 19,799	₹ 30,000	₹ 19,69,699
4	₹ 19,69,699	₹ 19,697	₹ 30,000	₹ 19,59,396
5	₹ 19,59,396	₹ 19,594	₹ 30,000	₹ 19,48,990

SWP Calculation Example with Inflation

So here’s another example where withdrawal amount is higher than the monthly returns we get from mutual funds.

If you notice the Updated Balance column, the value is decreasing with time, that’s because we have set the withdrawal amount higher than the returns we are getting from mutual funds.

So try to keep your withdrawal amount below the expected returns from market to keep your balance either same or increasing.

You don’t want to end up your balance after withdrawal high amounts every month. And if your monthly expenses are really high, than the accumulated balance need to be increased to meet your needs.

ALSO READ: Power of Compounding in Stock Market

Which SWP is best for 5 years?

There are no such separate mutual funds that are specifically best for SWP or Systematic Withdrawal Plan.

You can read about some Best Mutual Funds to know more about them. These are not recommendations but might give you some idea as to how mutual funds can be selected.

Is SWP better than FD?

SWP (Systematic Withdrawal Plan) and FD (Fixed deposits) are 2 different schemes for different purposes.

Here we will consider the Fixed Deposits that give quarterly returns (payout) and not the fixed deposits that accumulate interest over time to earn more interest (compounding).

Below are some differences in SWP and FD:

SWP (Systematic Withdrawal Plan)	FD (Fixed Deposits)
SWP must be started with long term goals in mind	FD must be started to achieve short term goals
Good returns of 10-15% over long term	Interest rates can range between 6.5 to 7.5% based on the tenure selected
For those who can take little risk after retirement, can go for SWP over 7-10 years for better returns	Those who don’t want to take risk and are happy with around 1.75% returns every quarter on the deposits can go for FD
SWP withdrawal is on monthly basis	FD interest payout is on quarterly basis
You have to pay income tax on the withdrawal amount every FY	FD interest are also taxable if your income is above basic exemption limit

SWP vs FD Comparison and Differences

So it depends on your goal and risk appetite whether you want to opt for SWP (Systematic Withdrawal Plan) or FD (Fixed Deposits).

What is SWP formula?

As seen in above calculations, SWP formula is very simple.

Based on the monthly interest rate (expected) and current Balance, the returns in mutual funds are calculated, and desired withdrawal amount is removed.

Below is the formula:

Monthly Profits = Monthly expected returns * Balance / 100

Using above formula, for Rs. 20 Lakh amount, 1% monthly return, you get profit of Rs. 20,000 for a month. Out of this, the withdrawal amount is Rs. 15,000, so remaining Rs. 5000 is additional returns on top of your existing balance of Rs. 20 Lakh.

This calculation is repeated every month until the maturity period or when balance becomes less than withdrawal amount.

What is the risk in SWP?

The risk in SWP is same as that in any mutual fund. In short term, Equity mutual funds can be highly risky if you are expecting some moderate returns. But over long term, we have seen historically that good mutual funds give 10% to 15% annual returns.

Some small cap mutual funds have also give more than 15% returns every year if returns are averaged over 7-10 years of period.

Conclusion

So SWP is a good option to get monthly income after you have accumulated sufficient amount in mutual funds. It is similar to Post Office Monthly Income Scheme in which you get regular income based on fixed interest rate.

You should plan carefully while investing in mutual funds to use SWP. If not selected properly, the mutual funds can eat your principal amount with increasing inflation every year.

Some more Reading:

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