A Systematic Withdrawal Plan (SWP) is the withdrawal counterpart to a Systematic Investment Plan (SIP). Instead of investing a fixed amount each month, an SWP redeems a fixed amount from your mutual fund corpus every month — giving you a predictable monthly income. The remaining corpus continues to stay invested and earn returns. An SWP works because the growth from the invested balance can partially or fully replenish what you withdraw, allowing the corpus to last far longer than a simple fixed deposit.
Whether your corpus lasts longer or shorter than your planned period depends entirely on the gap between your fund's return rate and your withdrawal rate. If your fund earns 10% annually but you withdraw at an 8% annual rate, the corpus grows even as you withdraw — potentially lasting indefinitely. If you withdraw at 12% from a fund returning 8%, the corpus will deplete before your planned period ends. A safe withdrawal rate for a balanced mutual fund (hybrid equity-debt) in India is generally considered to be 6–8% of the corpus annually. This calculator warns you if your inputs suggest corpus depletion before your target period.
Retirees use SWPs as an alternative to pension payouts. A typical strategy involves accumulating a retirement corpus via SIPs during working years, then switching to an SWP from a conservative hybrid or debt-oriented fund post-retirement. The tax efficiency is significant: each SWP redemption is partly a return of capital (not taxed) and partly capital gain (taxed at 12.5% for long-term equity gains above ₹1.25L annually). Compare this to FD monthly payouts where 100% of interest income is taxed at your slab rate — for someone in the 30% slab, SWP can be 2x more tax-efficient than FD withdrawals.