How does an SWP work?
A Systematic Withdrawal Plan (SWP) is the mirror image of a SIP: instead of paying a fixed sum in each month, you take a fixed sum out each month while the rest of the money stays invested and keeps earning. It is the standard way retirees turn a mutual-fund corpus into a monthly income without redeeming the whole holding in one go.
On every withdrawal date the fund sells just enough units to hand you the amount you asked for, and whatever is left continues to ride the market. When the corpus earns more than you draw, it can actually grow while paying you; in a weak year the same withdrawal bites into capital faster. The formula below tracks the balance that remains after n months.
Will my corpus last?
Whether the money survives is a tug-of-war between your withdrawal and the return. Draw less than the corpus earns and it can last indefinitely; draw far more and it drains no matter how strong the market is. The two plans below assume the same 8% return, yet one funds a full decade of income and still ends larger than it began, while the other is empty inside two years.
A useful yardstick: keeping the annual withdrawal near 6–7% of the corpus gives it a fair chance of lasting through a long retirement. ₹30,000 a month on ₹50,00,000 is about 7.2% a year, so an 8% return more than covers it; ₹50,000 a month on ₹10,00,000 is 60% a year, which nothing can sustain.
| ₹50,00,000 corpus, ₹30,000/mo | Lasts the full 10 years; grows to ~₹56 lakh |
| ₹10,00,000 corpus, ₹50,000/mo | Runs dry in ~22 months |
SWP vs a monthly payout from an FD
A fixed deposit with a monthly interest payout also hands you money every month, but the two behave very differently. An FD pays only its interest and returns exactly your principal at the end — the amount is fixed and safe, yet it never grows, so inflation quietly erodes what it buys.
An SWP can deliver a rising real income because the underlying corpus can appreciate, and you set the exact rupee figure rather than being tied to a deposit rate. The trade-off is market risk: in a downturn an SWP can shrink your capital, which an FD never does. Many retirees keep a safety-first base income in an FD and layer an SWP on top for growth.
How is an SWP taxed?
Tax on an SWP is gentler than it first appears, because each withdrawal is treated as part return-of-capital and part gain — and only the gain is taxed. If you redeem units worth ₹30,000 and ₹4,000 of that is profit, tax applies to the ₹4,000, not the whole ₹30,000.
For equity funds, gains on units held beyond a year are long-term and taxed at the prevailing LTCG rate above the annual exemption, while units sold sooner are short-term and taxed higher. Debt-fund gains are added to your income and taxed at slab. Because only the profit slice is taxed each time, an SWP is usually far more tax-efficient than an FD, whose entire interest is taxable every year.