How the SWP Calculator Works
A Systematic Withdrawal Plan (SWP) lets you withdraw a fixed amount from your mutual fund investment at regular intervals — typically monthly. The remaining corpus stays invested and continues to earn returns, making SWP a popular choice for generating regular income from investments.
The SWP Formula
Each month, the calculator applies the following logic:
Balancenew = Balanceold × (1 + monthly rate) − Withdrawal
Where:
- Monthly Rate =
(1 + annual_rate)1/12 − 1 (proper compounding, not simple division by 12)
- Balance = Remaining invested corpus after withdrawal
- Withdrawal = Fixed monthly amount (or adjusted if step-up is enabled)
Corpus Sustainability
The key question in any SWP is: will your corpus last? This depends on the relationship between your withdrawal rate and your return rate.
- If your monthly withdrawal is less than monthly returns, the corpus grows — you're living off the returns alone
- If withdrawal exceeds returns, the corpus depletes gradually. The higher the gap, the faster it runs out
- The popular 4% rule (withdraw 4% of corpus annually) is designed to make a retirement corpus last 30+ years
Inflation-Adjusted Withdrawals
Enabling the annual increase option lets your withdrawal grow each year to keep up with inflation. At 5-6% inflation, ₹30,000 today will have the purchasing power of about ₹18,000 in 10 years. Increasing withdrawals helps maintain your standard of living, but also depletes the corpus faster.
Tax on SWP Withdrawals
Each SWP withdrawal is a partial redemption of mutual fund units, processed on a First-In-First-Out (FIFO) basis. Only the gains portion of each withdrawal is taxable — not the full amount.
- Equity Funds (STCG): Units held less than 1 year — gains taxed at 20%
- Equity Funds (LTCG): Units held more than 1 year — gains above ₹1.25 lakh/year taxed at 12.5%
- Debt Funds (post April 2023): Gains taxed at your income slab rate regardless of holding period
Key advantage: In early years, a large portion of each withdrawal is return of your own capital (not gains), so the taxable component is small. This makes SWP significantly more tax-efficient than FD interest or dividend income.
Frequently Asked Questions
How does a Systematic Withdrawal Plan (SWP) work?
In an SWP, you invest a lump sum in a mutual fund and withdraw a fixed amount at regular intervals. The remaining corpus stays invested and earns returns. Each withdrawal redeems a small number of fund units — if returns exceed withdrawals, your corpus can actually grow over time.
What is a safe monthly withdrawal rate?
The "4% rule" suggests withdrawing 4% of your corpus annually (~0.33% monthly) to sustain it for 30+ years. For a ₹50 lakh corpus, that's about ₹16,700/month. In India, some advisors recommend 3-3.5% given higher inflation. This calculator shows you exactly how long your corpus lasts at your chosen rate.
How is SWP taxed?
Each SWP withdrawal redeems mutual fund units on FIFO basis. Only the gains portion is taxable. For equity funds held over 1 year, LTCG above ₹1.25 lakh is taxed at 12.5%. For debt funds (post April 2023), gains are taxed at your slab rate. The principal component of each withdrawal is tax-free.
Is SWP better than FD for regular income?
SWP has two advantages: (1) potential for higher returns from equity/hybrid funds, and (2) better tax efficiency since only gains are taxed. However, FD offers guaranteed returns with no market risk. For retirees, a balanced approach — some FD for safety, some SWP for growth — often works best.
Can I change my SWP withdrawal amount later?
Yes, most mutual fund houses allow you to modify, pause, or cancel your SWP at any time. You can increase withdrawals to match inflation or decrease them during market downturns to preserve your corpus.
What happens when the corpus runs out?
When all units are redeemed, the SWP automatically stops. You'll receive a partial payment for the last month if the balance is less than the withdrawal amount. This calculator clearly shows if and when your corpus will deplete.
