ET Mutual Funds Explains: The ABCD of systematic withdrawal plan (SWP)

Systematic withdrawal plan (SWP) allows an investor to withdraw a certain amount of money at regular intervals. The intervals can be monthly, quarterly, or yearly from your initial investment amount. This method helps in creating a regular flow of income from your initial investments.

This method is usually helpful for retired people. After retirement, when a person has a fixed corpus / invested amount, he/she needs regular money when the other income or salary is not available.

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In a systematic withdrawal plan, an investor invests lumpsum money in a mutual fund scheme and then keeps withdrawing a fixed amount from the same scheme at regular intervals. Many mutual fund analysts believe that SWP is a more beneficial tool to get regular money than dividends. Dividend from an equity mutual fund is not guaranteed as it depends on the market movements and the profit earned by the fund house.

A SWP calculator shows the amount left at the end after all the withdrawals. A systematic withdrawal plan calculator needs inputs such as total investment amount, monthly withdrawal needed, annual rate of return expected, and the total investment horizon.

How to calculate the closing value/ balance one will be left with after withdrawing a certain amount at regular intervals using PMT formula

Step 1: Enter the lumpsum amount you are investing

Let us suppose you are investing Rs 10,00,000

Step 2: Enter the expected rate of return on investment say 12% and the number of years you want to withdraw funds let's say 20 years

Step 3: Enter the future value or the balance which you want after last withdrawal say Rs 10,000

Step 4: Get the amount you want to withdraw using PMT formula

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The other way to calculate the closing value/ balance one will be left with after withdrawing a certain amount at regular intervals

Step 1: Enter your lumpsum investment amount, withdrawal you need to make per month, and rate of return you want on investment say 12%. Let's suppose the number of years for which you want to withdraw funds is 10 years.

Step 2: Enter the number of months that will be there in the number of years for which you want to withdraw funds

After mentioning the months and years for which you want to withdraw funds enter the opening balance/ initial lumpsum investment amount, withdrawal amount, returns, and the closing the balance that will be available.

Thus the balance or the amount that will be left at the end after the withdrawals for 10 years will be Rs 1.46 lakh crore.