How Does the SWP Calculator Work?
A Systematic Withdrawal Plan (SWP) allows mutual fund investors to redeem a fixed sum of money at regular intervals (monthly, quarterly) from an existing mutual fund corpus. It is the premier tax-efficient vehicle for generating regular monthly income during retirement or sabbatical.
While money is redeemed, the remaining capital stays invested in equity or debt funds and continues to generate compounded market returns.
Formula & Mathematical Methodology
The remaining portfolio balance is tracked month-by-month through iterative compounding:
Balancem = (Balancem-1 × (1 + r)) - W
Where r is the monthly rate of return (Annual Rate / 12) and W is the fixed monthly withdrawal amount.
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Step-by-Step Practical Calculation Example
Investing a corpus of ₹50,00,000 at 9% expected annual return while withdrawing ₹35,000/month for 15 years:
- Total Cash Withdrawn: ₹63,00,000 (15 years of steady monthly income)
- Remaining Portfolio Balance: ₹56,41,500
- The initial capital remained intact and grew while funding life expenses!