A Systematic Withdrawal Plan (SWP) is the reverse of a SIP — you withdraw a fixed amount every month from a mutual fund corpus while the rest continues to grow. Useful for retirees needing monthly income or for spending down a windfall steadily.
What is SWP?
SWP turns a lump-sum corpus into a regular monthly income stream. Unlike an annuity (which gives a fixed amount for life), SWP lets you control both the amount and duration. The trade-off is that the corpus might run out if you withdraw too aggressively or markets underperform.
Tax-wise, each SWP withdrawal is treated as a partial redemption — you only pay tax on the gain portion of the units redeemed (using FIFO ordering). This is far more tax-efficient than dividends from mutual funds (which are now fully taxable as income).
SWP works best with debt or hybrid funds for retirement income, since equity funds' volatility creates sequence-of-returns risk. For a 4-5% annual withdrawal rate, the corpus typically lasts 25-30 years if invested in a balanced portfolio.
Corpus + monthly drawdown
Each month, the corpus grows by the monthly return rate (annual / 12) and then a fixed withdrawal is deducted. The calculator simulates this month-by-month and tells you whether the corpus survives the chosen duration.
- Start
- Initial corpus—lump sum invested
- r
- Monthly return—annual return / 12
- n
- Months—duration × 12
- W
- Monthly withdrawal—fixed amount drawn each month
How to use this calculator
Four sliders to model the drawdown. The calculator simulates month-by-month.
Set initial corpus
The lump sum you start with — typically retirement savings or a windfall.
Set monthly withdrawal
What you need each month. 4-5% of corpus annually is a sustainable rate; higher risks running out.
Set expected return
For retirees, use 7-9% (debt-heavy portfolio). Don't use equity-only assumptions of 12%.
Set duration
How long you need the money to last. Plan for life expectancy + buffer.
When to use SWP
Retirement income
Set up SWP from a debt-heavy mutual fund portfolio at retirement. More tax-efficient than dividend mode or annuities.
Funding a child's expenses abroad
If you've saved for international education, SWP gives a steady monthly transfer instead of forcing one-time conversions.
Bridging income gaps
Career break, sabbatical, or transition period — SWP from existing investments covers monthly expenses without selling everything.
Inheritance distribution
Set up SWP to distribute inheritance proceeds gradually rather than as one lump sum.
Glossary
- SWP
- Systematic Withdrawal Plan — automatic monthly withdrawal from a mutual fund.
- Safe withdrawal rate
- Annual withdrawal as % of initial corpus that keeps the corpus alive for the planning period.
- Sequence-of-returns risk
- Risk that bad market years early in retirement permanently impair the corpus.
- FIFO
- First-In-First-Out — the unit identification method used for capital gains calculation in mutual fund redemptions.