How an SWP works
A Systematic Withdrawal Plan redeems a fixed amount from your mutual fund on a set date every month and pays it into your bank account. Whatever you don't withdraw stays invested and keeps earning. Retirees use SWPs as a pension-like income; others use them to fund a child's college fees or to top up rental income.
The key question is always the same: will the money last as long as I need it? The chart answers that directly: a line that stays up means the corpus survives; a line that hits zero means it runs out.
Worked example
The method
balance = (balance − withdrawal) × (1 + r/12)Choosing a safe withdrawal amount
- Stay below your expected return. If you withdraw 6% a year from a portfolio earning 8%, the corpus usually keeps growing.
- Plan for inflation. A fixed ₹30,000 buys less every year. Many retirees withdraw less at first and increase it by 5–6% each year.
- Keep 2–3 years of withdrawals in debt funds. Then a stock market fall doesn't force you to sell equity at low prices.
How SWP withdrawals are taxed
Each SWP payment is partly your own capital and partly gains. Only the gains portion is taxed as capital gains, which is why an SWP is often more tax-efficient than interest from a fixed deposit, where all the interest is taxed at your slab rate. For equity funds held over 12 months, long-term gains above ₹1.25 lakh a year are taxed at 12.5%.
Frequently asked questions
Is SWP better than a fixed deposit for monthly income?
Often, for tax reasons: only the gains part of each withdrawal is taxed, while FD interest is fully taxable. But SWP income depends on market returns, while FD interest is fixed.
What is a safe withdrawal rate in India?
Many planners use 3–4% of the corpus in the first year, rising with inflation, for a retirement lasting 30 years or more. Higher rates can work for shorter periods.
Can I change the SWP amount later?
Yes. You can stop, pause or change an SWP at any time through your fund house or investment app.