How an SWP works
With an SWP the fund house sells enough units each month to pay you the amount you chose. Whatever isn't withdrawn stays invested and keeps earning, or losing, with the fund. If returns are higher than what you take out, the balance can grow; if you take out more, it shrinks and eventually runs out.
The calculator assumes the same return every month, adds it to the balance and then takes out the withdrawal. Real returns go up and down, and a bad year early on hurts more than the same bad year later, because you're selling units when prices are low.
How long will the money last?
| Monthly withdrawal | Yearly increase | Result over 30 years |
|---|---|---|
| ₹25,000 | None | ₹1.51 crore left after 30 years |
| ₹25,000 | 5% a year | Runs out after 23 years 5 months |
| ₹30,000 | None | ₹80.57 lakh left after 30 years |
| ₹30,000 | 5% a year | Runs out after 18 years 4 months |
| ₹40,000 | None | Runs out after 21 years 3 months |
| ₹40,000 | 5% a year | Runs out after 12 years 9 months |
| ₹50,000 | None | Runs out after 13 years 5 months |
| ₹50,000 | 5% a year | Runs out after 9 years 10 months |
At 8% a year, ₹50 lakh earns about ₹32,170 a month. Withdraw less than that and the balance grows; withdraw more and it falls, slowly at first and then faster. A yearly increase to keep up with inflation shortens the time a lot, so try the calculator with 5% in the last field.
The two numbers to know
- Withdrawal that keeps the amount intact: roughly the monthly return on your money. Take this or less, without yearly raises, and, if the return holds, the amount you invested stays the same or grows.
- Most you can take to last the period: the withdrawal that brings the balance to zero exactly at the end, or the starting withdrawal if you raise it every year. It's the ceiling, not a target, because it leaves nothing for a bad run of returns.
How SWP withdrawals are taxed
Each withdrawal is a sale of units, so only the gain part of it is taxed, not the whole amount. For equity funds, units held more than 12 months are taxed at 12.5% on long-term gains above ₹1.25 lakh in a financial year, and units held 12 months or less at 20%. Gains on debt funds bought from 1 April 2023 are added to your income and taxed at your slab rate. That's why an SWP is often more tax-efficient than interest from a fixed deposit, which is fully taxable. Rules can change, so check the current position or ask a tax adviser.
SWP or dividends or FD interest?
- SWP: you choose the amount and date; only the gain part is taxed; the amount invested can fall in a bad market.
- Dividend (IDCW) option: the fund decides whether and how much to pay, and the payout is taxed at your slab rate.
- FD interest: fixed and predictable, fully taxable at your slab rate, and the capital doesn't fall. FD vs SIP compares the two approaches for building money.
To build the amount in the first place, see the SIP calculator and the lumpsum calculator.