Most of us must be either investing or at least aware of mutual fund SIPs, right? They indeed have been garnering a lot of attention in recent years, and becoming a new go to destination for creating the habit of regular investing, But do you know about SWPs? What are they and how can they be helpful for mutual fund investors?
What are SWPs?
Simply put, systematic withdrawal plans (SWP) are the opposite of SIPs. SWPs are a facility designed for investors allowing regular, fixed withdrawals from a mutual fund scheme. You decide on the frequency and amount of withdrawal. You could also decide to simply take back the gains on your investment, leaving your invested capital whole. Units from your portfolio are sold at the scheduled date, and the money is transferred to your account.
What are SWP calculators?
The SWP Calculator is a simulation displaying your mutual fund investment monthly withdrawals. It displays the mutual fund investment’s overall value following withdrawal. The methodical withdrawal approach might help you to obtain a consistent income in retirement. Enter the total investment amount, withdrawal per month, expected annual rate of return, and investment length in a formula box of the SWP Calculator. The SWP Calculator provides your mutual fund investments’ future value.
You can yourself plan the mutual fund SWPs for regular income inflow, especially by utilizing the swp calculator tool, to get a monthly inflow from your accumulated corpus, as per your financial requirements.
Also, just like SIP online calculators, you can utilize a SWP calculator to understand how much you would get as monthly inflow over a period of time when you begin withdrawing from your invested corpus.
How does the SWP calculator work?
Mutual fund’s SWP Calculators show you the regular inflow of income that you can expect throughout your chosen tenure if you begin withdrawing the invested amount. The following formula is used:
A = PMT ((1+r/n)^nt-1)/(r/n)), wherein A is your investment’s final value, PMT is each period’s payment amount, n is number of period for which the compounding would occur, and t is tenure of investment.
Why should you use the SWP Calculators?
SWP calculator enables you to find the ideal monthly withdrawals from your scheme. This helps you to organise your spending and satisfy them without any trouble.
- The calculator lets you figure your monthly returns and ROI on a whole investment. It guides your investment strategy and facilitates correct decision-making.
- The calculator lets you quickly modify the withdrawal amount and produce your expected return in a few seconds. It facilitates your simple planning of your investment.
- Online calculators are easy for users. Using this tool calls for no experience. All you have to do to instantly show the output is enter some calculation parameters.
- Above all, it is freely available.
How much tax do you pay on SWP?
The redemption through an SWP will be taxed as per whether they are debt or equity funds. Regarding debt funds, if your holding period is less than 36 months, the capital gains obtained will be included in your total income and taxed using your income tax slab rate. In case the holding period is more than 36 months, the capital gains are regarded as “long-term” and taxed at 20% following indexation.
Regarding equity funds, the capital gains realised will be taxed at 15% if your holding period is less than one year. Conversely, if the holding period is more than one year, you find long-term capital gains— taxable at 10% if the gains are more than Rs 1 lakh in a year.
Are income replacement term plans similar to mutual fund SWPs?
One factor that remains common between mutual fund SWPs and income replacement term plans, is the regular inflow of money that both provide. However, while an income replacement term plan does so only upon the insured’s demise, you can plan the mutual fund SWPs yourself, as per your financial goals.
Understanding Compound Interest Calculator tool
As you will have to compute compound interest on the principle and interest values for every year, hand computation of compound interest can be labour-intensive.
Compound interest is easier to compute using a compound interest rate calculator, reducing the need for human computation. The calculator will show the maturity value once you just enter the invested amount, rate of return, and period.
Also, if you have a target corpus you want, you can change the principal or the interest rate to observe how it affects the mature value.
How is compound interest different from simple interest?
After you have understood compound interest, let us understand what simple interest is. Simple interest is the rate of loan or borrowing of money. Should a borrower withdraw funds from a lender, an additional sum is returned to the lender. The principle refers to the borrowed money for a particular period. The interest is the additional sum paid back to the lender for usage of the funds.
So, by multiplying the principal amount by the interest rate and the number of periods helps you to find the simple interest. Simple interest does not compound, thus you are not liable for interest on interest. In simple interest, the payment counts towards the interest for the month; the remaining amount will lower the principal.
Also, just like you use compound interest rate calculator tools , you can utilize simple interest calculators too. Originally intended for loan or savings interest free from compounding, a simple interest calculator is a utility tool. You could daily, monthly, or yearly figure the simple interest on the principal amount. Using the principal amount, annual interest rate, and period expressed in days, months, or years into the simple interest calculator results in the calculator will show the interest of the loan or the investment.
Simple interest calculator uses this formula: A = P (1+rt), wherein P is the principal, R is interest rate, t is number of years and A is principal plus interest amount. The simple interest turns out to be A-P.
Disclaimer: This article contains sponsored marketing content. It is intended for promotional purposes and should not be considered as an endorsement or recommendation by our website. Readers are encouraged to conduct their own research and exercise their own judgment before making any decisions based on the information provided in this article.
