What is SWP (Systematic Withdrawal Plan)?
A Systematic Withdrawal Plan (SWP) allows you to withdraw a fixed amount regularly from your mutual fund investments while the remaining corpus continues to earn returns. It is essentially the reverse of an SIP (Systematic Investment Plan). Instead of investing a fixed amount every month, you withdraw a fixed amount every month to meet your recurring expenses. This is an excellent strategy for retirees looking for a steady "pension-like" income or for anyone needing regular cash flow from their investments. The key advantage of SWP is that your remaining money stays invested and continues to grow, potentially extending the life of your corpus significantly compared to keeping it in a savings account.
SWP Logic
How to use this calculator
- Enter your Total Investment Amount (your corpus)
- Set your desired Monthly Withdrawal Amount
- Input the Expected Annual Return rate
- Choose the Time Period to see how long your money lasts
When Should You Use SWP?
- Generating a regular monthly pension during retirement
- Booking regular profits from a lump sum investment
- Paying for recurring expenses like children's school fees or rent
- Reducing tax liability compared to traditional FDs (SWP is more tax-efficient)
- Supplementing your primary salary with passive income
- Managing cash flow from an inheritance or windfall gain
Real-World Examples
Retirement Income
You have a retirement corpus of ₹50 Lakhs and need ₹30,000 monthly income.
💡 With a 10% return, your ₹50L corpus can easily support a ₹30k withdrawal (approx 7.2% annual rate) while potentially growing in value.
Education Fee Support
You deposit ₹10 Lakhs to pay monthly school fees of ₹8,000.
💡 This setup ensures fees are paid automatically while the principal remains available for college later.
Tax Efficiency Strategy
Withdrawing ₹20,000/month from Debt Mutual Fund vs FD Interest.
💡 In SWP, tax is payable only on the capital gains portion of the withdrawal, whereas FD interest is fully taxable at your slab rate.
SWP vs IDCW (Dividend) Plan
Why SWP is often better than relying on mutual fund dividends.
| Feature | SWP (Growth Option) | IDCW (Dividend Option) |
|---|---|---|
| Income Certainty | Fixed Amount (Guaranteed flow) | Uncertain (Depends on fund profits) |
| Tax Efficiency | High (Capital Gains Tax) | Low (Taxed at Slab Rate) |
| Control | You decide amount & date | Fund House decides |
| Capital Growth | Better (Power of Compounding) | Lower (NAV falls after dividend) |
| Suitability | Regular Monthly Income | Occasional Payouts |
Common SWP Mistakes to Avoid
Withdrawing Too Much (High Withdrawal Rate)
The Issue:Withdrawing more than your portfolio returns (e.g., 10% withdrawal when returns are 8%) will deplete your capital rapidly.
Starting SWP in a Bear Market
The Issue:Withdrawing fixed amounts when markets are down forces you to sell more units, depleting your portfolio faster (Sequence of Returns Risk).
Ignoring Inflation
The Issue:A fixed withdrawal of ₹30,000 today won't buy the same amount of goods 10 years later.
Pro Tips for Smart SWP
Tax Benefits of SWP
SWP is one of the most tax-efficient ways to generate cash flow. Unlike Fixed Deposit interest which is fully taxable at your income tax slab (up to 30%+), SWP withdrawals are treated as capital redemptions. You only pay tax on the *gains* portion of each withdrawal. For equity funds held >1 year, gains up to ₹1.25 Lakh are tax-free annually, and the rest is taxed at only 12.5%.
SWP vs Fixed Deposit Interest
In an FD, you get interest payout, but the principal usually loses value due to inflation. In a well-managed SWP (with a withdrawal rate lower than returns), your principal can actually grow over time, providing an inflation hedge while giving you monthly income.
Frequently Asked Questions
What is a good SWP withdrawal rate?
A sustainable withdrawal rate is typically considered to be 3-4% of your corpus annually for inflation-adjusted income, or up to 6-7% if you want to preserve capital nominal value. If your fund earns 10% and you withdraw 6%, your capital grows by ~4%.
Is SWP tax-free?
No, but it is tax-efficient. Each withdrawal has a principal component (tax-free) and a capital gain component (taxable). You only pay tax on the gain part. For long-term equity holdings, gains up to ₹1.25 Lakh/year are exempt from tax.
Can I stop SWP anytime?
Yes, SWP offers complete flexibility. You can start, stop, increase, or decrease your withdrawal amount at any time without any penalty from the mutual fund house.
Does SWP guarantee monthly income?
Yes, the *payout* is guaranteed as long as you have units in your folio. The fund house will sell the required number of units to generate your requested amount. However, if the market crashes and you withdraw heavily, you might deplete your units faster than expected.
Which mutual fund is best for SWP?
For regular income, stability is key. Hybrid Aggressive Funds or Balanced Advantage Funds are popular for SWP as they mix equity (for growth) and debt (for stability). Conservative investors may prefer Debt Funds, though returns are lower.