SWP (Monthly Income)
Plan systematic withdrawals to generate a steady monthly income.
Plan Summary
*Assuming monthly compounding.
A Systematic Withdrawal Plan (SWP) is the reverse of a SIP. While SIP allows you to accumulate wealth, SWP allows you to withdraw a fixed amount monthly from your accumulated corpus. It is the gold standard for generating a regular monthly pension for retirees.
💰 Why SWP beats FD Interest
In a Fixed Deposit, the entire interest is taxed as per your slab. In SWP, you only pay tax on the capital gains portion of the withdrawal, not the principal. This makes SWP extremely tax-efficient, often resulting in near-zero tax for the first few years.
How SWP Works
You invest a lumpsum (e.g., ₹50 Lakhs) in a mutual fund. You instruct the fund to pay you ₹30,000 every month. The fund sells enough units to generate this cash. Meanwhile, the remaining money stays invested and continues to grow.
Frequently Asked Questions
Is SWP tax-free?
Not entirely. The principal part of your withdrawal is tax-free. Only the gain part is taxed (12.5% for Equity LTCG above ₹1.25L). This is much lower than FD tax.
Can I stop SWP anytime?
Yes, you have full control to stop, pause, or change the withdrawal amount anytime via your AMC dashboard.
What is the best fund for SWP?
Retirees usually prefer <strong>Hybrid Aggressive Funds</strong> or <strong>Balanced Advantage Funds</strong> as they offer a mix of growth (equity) and stability (debt).
Does SWP erode capital?
It depends. If your withdrawal rate is higher than the fund's growth rate, your capital will deplete. A safe withdrawal rate is usually 4% to 6% per annum.
Can I do SWP from ELSS?
No, ELSS funds have a 3-year lock-in. You cannot start an SWP until the units have completed the lock-in period.