Is SWP safe for retirees?

SWP carries market risk since the underlying corpus is in Mutual Funds. However, using a conservative Hybrid Fund or Debt Fund significantly reduces volatility while still offering better returns than FDs.

Does SWP eat into my principal?

It depends on the withdrawal rate. If you withdraw 6% while your fund grows at 9%, your principal actually grows. If you withdraw more than the growth rate, the principal will deplete over time.

SWP is extremely tax-efficient. You only pay tax on the 'gains' portion of the withdrawal, not the principal. For equity funds, gains up to ₹1.25 Lakh/year are tax-free.

SWP vs FD: How to Generate Monthly Income Without Running Out of Money

Who this guide is for: Retirees and near-retirees looking for a monthly income source that beats inflation and saves tax, moving beyond traditional bank deposits.

This comparison is based on the 2025 tax regime for Debt and Equity Mutual Funds and uses standard withdrawal rate guidelines recommended by financial planners.

"I will just live off the interest." This is the retirement plan for 90% of Indians. You put ₹1 Crore in an FD, get ₹7 Lakhs interest, and life is good.

But here is the problem: In 10 years, that ₹7 Lakhs will only buy what ₹4 Lakhs buys today. You are running out of purchasing power, even if you aren't running out of money. Enter the SWP (Systematic Withdrawal Plan)—a smarter way to pay yourself.

1. The "Interest Only" Trap

In a Fixed Deposit, your principal (₹1 Crore) remains constant. It does not grow. Meanwhile, Inflation is constantly eating away at its value.

Also, FD interest is fully taxable. If you are in the 30% bracket, your 7% return becomes 4.9% post-tax. Since inflation is ~6%, you are getting poorer every single year.

Will Your Corpus Last?

Use our calculator to check how long your retirement savings will last if you withdraw ₹50,000/month.

Check Corpus Longevity

2. What is an SWP?

SWP stands for Systematic Withdrawal Plan. It is the exact opposite of an SIP. In an SIP, you give money to the mutual fund every month. In an SWP, the mutual fund gives money to you every month.

You invest a lumpsum amount (e.g., in a Hybrid Mutual Fund). You instruct the fund to sell a small portion of units every month and send the cash to your bank account. The remaining money stays invested and continues to grow.

3. The Tax Battle: Why SWP Wins

This is the biggest secret of SWP. When you withdraw money via SWP, you are withdrawing a mix of your Principal (which is tax-free) and Gain.

Example: You withdraw ₹50,000/month.

FD: The entire ₹50,000 is interest income. Taxed at 30%.
SWP: Maybe ₹45,000 is your own principal coming back (0% tax) and only ₹5,000 is profit. You only pay tax on that ₹5,000.

For Equity/Hybrid funds, Capital Gains up to ₹1.25 Lakhs per year are TAX-FREE. This often makes your monthly income completely tax-free for many years.

Calculate Your Monthly Income

See how much you can withdraw monthly from your lumpsum investment.

Open SWP Calculator

4. Will I Run Out of Money? (Simulation)

Many seniors fear SWP because they think it "eats the principal." Let's look at the math over 20 years.

Scenario: Invest ₹50 Lakhs. Withdraw ₹30,000/month.

Parameter	Fixed Deposit (7%)	SWP (Hybrid Fund 9%)
Monthly Payout	₹29,166 (Interest)	₹30,000 (Fixed)
Tax Liability	High (Slab Rate)	Very Low
Corpus after 20 Years	₹50 Lakhs (Flat)	~₹1.3 Crores (Grown)
Real Value	Eroded by Inflation	Maintained / Grown

Key Takeaway: In an SWP, if your withdrawal rate is lower than the fund's growth rate (e.g., withdraw 6%, grow 9%), your corpus actually increases over time while paying you a salary.

5. Side-by-Side Comparison

Feature	Fixed Deposit (FD)	SWP (Mutual Fund)
Returns	Fixed (Low)	Market Linked (Moderate/High)
Taxation	Inefficient (Slab Rate)	Efficient (Capital Gains)
Inflation Protection	None	Good
Best For	0-3 Years Safety	5+ Years Income

For detailed regulations on mutual fund withdrawals, refer to AMFI India.

Conclusion

FDs provide a false sense of security. For a retirement that lasts 25-30 years, you need your money to grow. A conservative SWP from a Hybrid Mutual Fund is mathematically the most efficient way to generate a regular "pension" for yourself.