How an SWP works
A Systematic Withdrawal Plan lets you draw a fixed sum every month from a mutual fund corpus while the remaining balance continues to earn returns. Think of it as the mirror image of a SIP: instead of investing ₹X every month to build a corpus, you withdraw ₹X every month from an existing corpus.
The key insight is that the corpus keeps working while you draw from it. If the fund returns exceed the withdrawal rate, the corpus can sustain withdrawals indefinitely or even grow. If returns fall short, the corpus shrinks month by month until it depletes.
Monthly iteration:
- Balance earns the month’s return:
new_balance = balance × (1 + annual_rate / 12) - Withdrawal is deducted:
balance = new_balance − monthly_withdrawal - If balance after step 1 is less than the withdrawal amount, the corpus is depleted at that month.
The sustainability equation
For a corpus to never deplete, the monthly return must equal or exceed the monthly withdrawal:
corpus × (annual_rate / 12) ≥ monthly_withdrawal
Rearranging: sustainable_withdrawal = corpus × (annual_rate / 12)
Example: ₹50L corpus at 8% annual return:
- Monthly return = ₹50,00,000 × (8% / 12) = ₹33,333
- Withdrawing ≤ ₹33,333/month → corpus never depletes (it stays flat)
- Withdrawing ₹50,000/month → corpus depletes over time (you are drawing ₹16,667/month from principal)
This calculator runs the full month-by-month simulation so you see exactly when (if ever) the corpus runs out.
Why inflation matters
A common mistake in SWP planning is using a fixed withdrawal amount over 20–30 years. If your monthly expenses today are ₹50,000, in 10 years at 6% inflation they will be ~₹89,500. A fixed ₹50,000 withdrawal will only cover 56% of your expenses a decade later.
Use our SWP with inflation calculator to model a withdrawal that steps up every year at your inflation assumption — this gives a far more realistic picture of retirement corpus longevity.
Tax treatment of SWP
Each SWP redemption is treated as a sale of mutual fund units — triggering capital gains tax:
| Fund type | Holding period | Tax rate (post-23-Jul-2024) |
|---|---|---|
| Equity-oriented | > 1 year | LTCG 12.5% on gains > ₹1L/FY |
| Equity-oriented | ≤ 1 year | STCG 20% |
| Debt MF (post 1-Apr-2023) | Any | Slab rate |
The tax advantage of SWP over bank FD withdrawals: only the gain component of each redemption is taxable, not the full withdrawal amount. The cost basis of units redeemed determines the gain.
Use the LTCG equity calculator to estimate the tax impact on your SWP redemptions.
Bridges
- SWP with inflation calculator — model annual step-up in withdrawal to account for inflation
- SIP calculator — build the corpus before drawing it down
- Lumpsum calculator — compute the future value of a one-time investment
- LTCG equity calculator — compute tax on each SWP redemption
- Step-up SIP calculator — project a growing SIP to build a larger corpus