Understanding SWP calculator and how it may help in mutual fund planning

If you’re looking to turn your mutual fund investments into a potential source of income, a Systematic Withdrawal Plan (SWP) may help.

Instead of selling your investment all at once, an SWP allows you to withdraw a fixed amount at intervals, keeping your money invested and potentially growing. Using an SWP calculator may give a detailed picture of how much you could withdraw and how long your investment may last. It’s a suitable way to plan withdrawals without losing track of your long-term investment goals.

The calculator is an aid, not a prediction tool. It may provide only an indicative picture.

What is an SWP calculator?

An SWP calculator is a financial tool that allows investors to plan their systematic withdrawals from mutual funds.

Using inputs such as the invested amount, expected returns, and withdrawal frequency, the calculator may provide an indicative picture of how the investment could reduce over time while generating a regular income.

The calculator is an aid, not a prediction tool. It may provide only an indicative picture.

How SWP works in mutual funds

Through an SWP, investors may withdraw a fixed sum at predetermined intervals. This sum may be monthly, quarterly, or annually etc. The remaining investment continues to stay invested in the chosen mutual fund, potentially earning returns.

The frequency and number of withdrawals may influence how long the capital lasts and the overall returns generated.

Investors may choose mutual funds across categories, including flexi cap, multi cap, large cap, mid cap, small cap, and hybrid funds, depending on their risk appetite and income needs.

An SWP may help convert a lump sum investment into a structured income plan without selling all units at once.

Benefits of using an SWP
Using an SWP may provide potential advantages for investors seeking regular income:

• Regular income: An SWP may offer a structured way to receive payouts at set intervals.
• Potential tax efficiency: In equity-oriented mutual funds, long-term capital gains taxation rules may apply if the investment is held beyond 12 months.
• Flexible withdrawals: Investors may adjust the withdrawal amount or pause the SWP if required.

For illustrative purpose only

It is important to remember that withdrawals reduce the investment base. As a result, the potential for wealth accumulation may reduce over time if withdrawals exceed the fund’s growth. Past performance may or may not be sustained in future.

Tax implications of SWP

Understanding taxation is essential when planning an SWP. Equity-oriented mutual funds (≥65% equity exposure) are subject to:

• Short-term capital gains (STCG) if units sold within 12 months, taxed at 20% plus applicable surcharge and cess for redemptions on or after July 23, 2024
• Long-term capital gains (LTCG) if units held beyond 12 months; gains up to Rs. 1.25 lakh in a financial year are exempt, while the rest is taxed at 12.5% plus surcharge and cess

Debt funds, liquid funds, money market funds, gilt funds, and hybrid funds with <65% equity exposure follow STCG rules as per the investor’s income tax slab rate.

For illustrative purpose only

How an SWP calculator may help investors

An SWP calculator may simplify planning by allowing investors to test different scenarios.

For instance, the calculator may show how monthly withdrawals of Rs. 10,000 over 5 years could impact the remaining fund value. By adjusting inputs like expected returns or withdrawal frequency, investors may gauge how long the investment may last and plan accordingly.

The calculator is an aid, not a prediction tool. It may provide only an indicative picture.

Integrating SWP with mutual fund strategy

An SWP may complement broader mutual fund planning. Investors may maintain a diversified portfolio across equity, debt, and hybrid funds to balance potential growth with potentially stable withdrawals. By reviewing the investment periodically and using tools like an SWP calculator, investors may make informed decisions about withdrawal amounts and timelines.

Using mutual fund options with different risk profiles may help adjust withdrawals according to changing income requirements or market conditions.

Conclusion

An SWP may provide a structured approach to generate regular income from mutual fund investments while keeping a portion of capital invested. Using an SWP calculator may help investors estimate potential withdrawals and remaining fund value, supporting planning and decision-making. While withdrawals and market performance may affect the capital, an SWP may help align investments with income needs.

For illustrative purpose only

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.