Do you think investment management is all about earning good returns? You’re mistaken!
You need an equally effective plan for how you withdraw your wealth. Maybe you have been investing in mutual funds for regular income or building a retirement corpus. In any case, it’s crucial to strike the right balance between growth and sustainability. What if uncalculated expenses or unplanned withdrawals exhaust all your savings?
That’s why we’ve explained the right approach to withdrawal based on your goals in this blog.
What is a Systematic Withdrawal Plan?
Ultimately, the goal of every investor is to convert their investments into steady income. This goal becomes realistic when you set up a practical SWP (systematic withdrawal plan).
This ensures you can withdraw a fixed amount of money, or a percentage of your investments, at regular intervals. Depending on your requirements, this frequency can be monthly, quarterly, or annually.
An SWP calculator will help you visualise how your corpus performs over time once you start withdrawing funds periodically. After a certain period of accumulating wealth, the compounding effect comes into play, which keeps generating further wealth consistently.
Now, why do you think investors must use a calculator for SWP? The goal is to ensure you keep earning or redeeming your units while the corpus remains stable.
How to Decide Your Withdrawal Amount
Three major factors decide your ideal withdrawal amount: your expected return, inflation rate, and time horizon.
Investment goal
Firstly, decide why you’re investing. Are you planning to generate a consistent monthly income? Or want to save for your kids’ education or travel?
Estimate returns
Now, estimate the returns using a mutual fund returns calculator.
Adjust for inflation
Even mild inflation can erode your purchasing power over time. So, adjust for inflation and set practical goals.
Apply a sustainable withdrawal rate
A practical approach is to apply the 4% rule while withdrawing the funds. This implies you can withdraw 4% of your initial corpus annually to preserve your capital.
Factors That Influence Withdrawal Decisions
SWP calculators help investors with estimates and plans. However, conditions often change in real life. So, make sure to consider these factors while devising your withdrawal strategy.
- Volatility
Reducing withdrawals during downturns prevents investors from selling the units at low prices.
- Tax efficiency
Compared to lump-sum withdrawals, SWPs are more tax-efficient. Only the gains portion is taxed.
- Age and financial goals
While retirees prefer stability, younger investors often go with a flexible approach.
It’s advisable to revisit your withdrawal plan regularly using an SWP calculator. This will help you make informed decisions as market conditions and personal requirements change.
Example: How to use a Mutual Fund Returns Calculator with SWP
Suppose you invest INR 20 lakh in a balanced mutual fund, and it grows to INR 30 lakh in 5 years. Now, if you set up an SWP of INR 20,000 per month to manage your regular expenses, the calculator will show how long your corpus will last. You can also check the residual value remaining after the withdrawals.
This way, you can visualise your cash flow and growth, so that you can manage your expenses without exhausting your savings.
Conclusion
Ideally, investors must hit the right spot between wealth accumulation and expenses while setting up an SWP. First, use a simple SIP calculator to estimate how much you’ll accumulate after a certain number of years. Next, use an SWP calculator to determine the amount you can withdraw while adjusting the corpus. With the right strategy, it’s possible to stable income through well-planned investments.
