SWP (Systematic Withdrawal Plan)

A Systematic Withdrawal Plan (SWP) is a facility offered by mutual funds that lets you withdraw a fixed amount at regular intervals — commonly monthly — from an invested corpus while the remaining money stays invested and keeps working. It is a popular way for retirees to draw a regular "salary" from a lump sum without selling the entire investment at once. It is the natural complement to a SIP: a SIP puts money in, an SWP takes it out.

How it works

You set three things with an SWP: the withdrawal amount, the frequency (often monthly or quarterly), and the fund or portion of your corpus involved. Each period, the fund redeems enough units to pay your chosen amount. Provided the investment is growing, your unit balance shrinks only slowly — or can even last a very long time.

How long your money lasts

The critical relationship is between your monthly earnings and your monthly withdrawal:

• If the withdrawal is less than the amount the corpus earns, the principal can last indefinitely — you're living off the income.
• If the withdrawal is more than what it earns, the corpus is being eaten into and will eventually run out.

For example, a ₹50 lakh corpus earning an average of 7% a year generates about ₹2.9 lakh a year. Withdrawing ₹20,000 a month (₹2.4 lakh a year) keeps the corpus roughly stable; withdrawing ₹40,000 a month would deplete it over time.

What to watch for

• Market risk. Because SWPs usually run on equity or hybrid funds, returns (and therefore the withdrawal's impact) are not guaranteed — a long market downturn can deplete a corpus faster than expected.
• Tax treatment differs between the growth portion (withdrawals are taxed on capital gains) and, for some plans, the returning of principal — so an SWP is not automatically tax-free.
• SWPs are best planned with a cushion so that a sequence of poor years does not force premature depletion.

A practical habit is to set the withdrawal comfortably below the fund's long-run expected earnings and to keep a few months of expenses in cash, so a market dip does not force you to sell units at their lowest. For many retirees, pairing an SWP with guaranteed-return holdings makes the income stream steadier without betting everything on one asset class.

Run your own numbers to see how long a corpus lasts with the SWP Calculator.