SWP

Full form: Systematic Withdrawal Plan

Investments

SWP is the reverse of SIP -- regular automatic withdrawal from a mutual fund. Used in retirement to create monthly income. Only the gain portion of each withdrawal is taxed as capital gains (far more efficient than FD interest taxed at slab rate).

In detail

Safe withdrawal rate: 4% annually (4% rule). At 4%: Rs 1 Cr corpus = Rs 33,333/month. Tax efficiency: equity fund LTCG at 12.5% vs FD interest at 30% slab rate. Remaining corpus continues to grow offsetting withdrawals.

Formula

Monthly SWP = (Corpus x 4%) / 12nRs 1 Cr: Rs 40,000/month at 4% annual rate

Real-life example

🇮🇳 India example

Ramesh, 60, Rs 1.2 Cr in equity fund. SWP Rs 40,000/month (4% annual rate). Only gains portion taxed at 12.5% LTCG. Effective tax on withdrawals approximately 5-8% vs FD at 30%.

Frequently asked questions

SWP vs FD for retirement income? ▼

SWP has market risk FD does not. But SWP is more tax-efficient and offers inflation-linked returns. Best: combine NPS annuity (guaranteed) + equity SWP (growth + tax efficiency).