Mutual Fund SWP calculation: Systematic Withdrawal Plan (SWP) allows mutual fund investors to withdraw a fixed or variable amount on a pre-determined date. The payment can be taken on a fixed date every month, quarter or year.
To enjoy the benefit of Mutual Fund SWP, investors are required to invest a lump sum, which will earn returns during the period of the SWP and provide a fixed amount on a pre-decided interval. However, the amount you can withdraw through SWP would mostly depend on the following factors.
Amount invested: Higher the lump sum, the higher will be the returns on it. If you invest a low lump sum, the periodic amount that you can withdraw via SWP may also be low depending on the returns and duration.
Expected Returns: Returns from Mutual Funds are not assured or guaranteed. If the returns are low, the lump sum may be exhausted earlier. However, if the fund performs better and gives a higher return, the lump sum investment would be able to sustain the SWP for a longer period (see example below)
Choice of Funds: As mutual funds are subject to market risks, choice of funds becomes very important. A fund that has given good returns in past may not continue to do the same in future (see an example). It is therefore recommended to consult a professional SEBI-certified financial advisor to find the most suitable fund for SWP.
Duration of SWP: The duration of SWP also matters. In the long term, mutual funds generally perform better. So if you remain invested for a longer duration, your lump sum may compound better and sustain the SWP as well. In the short term, the lump sum may be exhausted early as your investment will not be able to enjoy the full benefits of compounding.
Let’s assume you have decided to
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