You have spent years building a corpus. Now you need it to pay you every month, like a salary. A Systematic Withdrawal Plan (SWP) does exactly that.
How SWP works
You invest a lumpsum in a mutual fund and instruct it to pay a fixed amount to your bank account on a fixed date every month. The fund sells just enough units to make the payment. The rest of your money stays invested and keeps earning.
An example
Suppose you invest ₹50 lakh and withdraw ₹30,000 a month. That is ₹3.6 lakh a year, or 7.2% of the corpus. If the fund earns 8% a year, after 20 years you would have withdrawn ₹72 lakh and still have about ₹68,00,000 left. If the fund earns less, or you withdraw more, the balance falls faster. Try different numbers in our SWP calculator.
How much can you withdraw safely?
If you want your money to last 25 to 30 years, keep yearly withdrawals around 5 to 6% of the corpus at the start, and increase them gradually. A higher rate can work for shorter periods or if you have other income such as a pension or rent.
Why SWP can be tax-efficient
Interest from a fixed deposit is fully taxable at your slab rate every year. In an SWP, each withdrawal is partly your own capital and partly gains. Only the gain portion is taxed, and for equity funds held over 12 months, long-term gains up to ₹1.25 lakh a year are tax-free. This often means lower tax than the same income from interest.
Building a retirement income plan
- Keep 1 to 2 years of withdrawals in a liquid or short-term debt fund.
- Keep 3 to 7 years of needs in a conservative hybrid or debt fund.
- Keep the long-term portion in a balanced or equity fund to beat inflation.
- Refill the short-term bucket from the others once a year.
