SWP Calculator

A Systematic Withdrawal Plan (SWP) lets you withdraw a fixed amount from an invested corpus at regular intervals while the remaining balance stays invested and compounds. The mechanics: each period, your portfolio first earns its periodic return, then the withdrawal is deducted. This order matters — growth before withdrawal maximises compounding. At 10% annual return on ₹1 Cr, the portfolio generates ₹10 L/year — comfortably covering ₹3.6 L in annual withdrawals (₹30K/month) and still adding ₹6.4 L back to the corpus. Think of it as the mirror image of SIP: SIP builds wealth by investing regularly; SWP distributes wealth by withdrawing regularly — while the compounding engine keeps running.

SWP is designed for the distribution phase — when you have a corpus and need it to generate income without being fully liquidated. Ideal users: retirees replacing salary income from EPF, gratuity, or provident funds; financially independent individuals drawing passive income without touching principal; investors with lump-sum proceeds (FD maturity, property sale, inheritance) who want structured payouts; and pre-retirees stress-testing their corpus. The critical qualifier: SWP distributes existing wealth — it does not build it. Start SWP only after you have accumulated your target corpus and only when you need the income, to maximise the compounding window.

Core advantages: (1) Tax efficiency — only the capital gains portion of each SWP redemption is taxed, unlike FD interest which is fully taxable as income; (2) Flexibility — amount, frequency, and date can be changed anytime without exit loads (after standard holding periods); (3) Compounding continues — undrawn corpus keeps earning returns; (4) Discipline — prevents lump-sum lifestyle spend-downs. Known trade-offs: (1) No capital guarantee — unlike FDs, corpus value fluctuates with markets; (2) Sequence-of-returns risk — a sharp early downturn while withdrawals continue can permanently reduce the portfolio, even if long-term average returns recover; (3) Requires active management — you must choose the right return rate, maintain a safe withdrawal percentage, and review annually.

Fixed Deposits: guaranteed capital and predictable interest, but interest is fully taxable as income, returns rarely beat inflation after tax, and there is no growth in the corpus. Over 25 years, FDs significantly erode real purchasing power. Dividend Plans: fund dividends are discretionary (the fund decides when and how much), fully taxable since 2020 at the investor slab rate, and each payout reduces NAV. You have no control over timing or amount. SWP wins on: tax efficiency (only gains taxed, with LTCG exemption), control (you set the exact amount and date), and long-term return potential (equity funds average 10–13% vs FD at 6–7%). FDs win on: capital safety and simplicity. Best practice: hold 1–2 years of expenses in FDs as a buffer, and run SWP from equity/balanced funds for the rest.

At 6% annual inflation, ₹30,000/month today carries the same purchasing power as only ₹12,900/month in 25 years. Fixed SWP — withdrawing the same nominal amount indefinitely — means your real standard of living quietly declines each year. The solution is inflation-adjusted SWP: increasing withdrawals annually by the inflation rate so you can buy the same basket of goods every year. The direct trade-off: higher later-year withdrawals place greater pressure on the corpus. Run this calculator twice — first with fixed withdrawals, then with inflation adjustment enabled — to see the full cost of maintaining real income. For most retirees, a 5–6% annual step-up is essential for a 20+ year SWP.

The 4% rule (Trinity Study, 1994) found that a diversified portfolio can sustain 4% annual withdrawals over 30 years without depletion. For Indian investors, higher equity returns (10–14% historical CAGR) but also higher inflation (5–7%) mean the real return is roughly 3.5–8% depending on allocation. The key insight: if your real portfolio return > withdrawal rate, the corpus grows indefinitely — truly perpetual income. If real return < withdrawal rate, the corpus erodes with a calculable depletion date. Strategies to maximise longevity: start below 4% withdrawal rate; keep a 1–2 year expense buffer in liquid funds to avoid forced selling during downturns; rebalance annually; step up withdrawals only by inflation, not lifestyle growth; and review the plan every year.