# What Is an SWP? Turn Savings Into a Monthly Income How a Systematic Withdrawal Plan pays you a monthly income from mutual funds, a safe withdrawal rate, how SWP is taxed, and how it compares with an FD. By Nikhil Varghese, CA · 1 November 2025 · https://finniki.com/blog/swp-systematic-withdrawal-plan **Quick answer:** A **Systematic Withdrawal Plan (SWP)** pays you a fixed amount every month (or quarter) from a mutual fund by selling a few units each time, while the rest stays invested. It is the reverse of a SIP: you draw income from wealth you have built. It suits retirees and anyone with a lump sum who wants regular cash flow. Keep withdrawals to about **4 to 8% of the corpus a year**: take out much more than the fund earns and the money runs out. Only the gain in each withdrawal is taxed, which usually makes an SWP more tax-efficient than FD interest. *Updated October 2026. The episode put the long-term capital gains exemption at ₹1.35 lakh; it is **₹1.25 lakh** a year. Two of its examples have also been corrected below.* [Watch the episode: What is SWP? The smart way to earn monthly income from investments](https://youtu.be/xVlZTeoghEM) ## What is an SWP in mutual funds? A way to turn an investment into a monthly paycheque. Think of a water tank on your roof: you fill it once and draw water through a tap as you need it. An SWP is a tank that partly refills itself while you use it, because the money left in the fund keeps earning. You choose the amount, the frequency (monthly, quarterly or yearly) and the date, and you can pause, raise or lower it whenever you like. ## How does an SWP work? The fund sells just enough units on each date to pay you the amount you set. Take Raj, 35, who inherited ₹1 crore. Instead of buying a luxury car, he invested it in a balanced (hybrid) fund that earns about 10% a year and set up an SWP of ₹1 lakh a month. Every month, the fund sells a few units and ₹1 lakh lands in his account, while the rest stays invested and keeps compounding. His corpus is doing two jobs: paying him and still growing. ## What is the difference between SIP and SWP? They are the two halves of the wealth cycle. In your working years you **SIP**, investing a fixed amount every month to build a corpus. Later you switch to an **SWP** and draw a regular income from it. SIP is breathing in; SWP is breathing out. ![The wealth cycle: invest through a SIP in your working years, draw income through an SWP later.](https://finniki.com/blog/media/894dabc9988ea2df5ec33c82.jpg) You do not have to wait for retirement. A bonus, incentive or freelance income can go into a fund with an SWP. Better still, let a lump sum grow for 5, 10 or 15 years first, then start the SWP from a much larger corpus. ## How long will an SWP last? It depends on how much you withdraw against what the fund earns. Raj takes ₹12 lakh a year from ₹1 crore, 12% of the corpus, while the fund earns about 10%: - After **10 years** he has drawn **₹1.2 crore** and still has about **₹60 lakh** left. - But because he takes out more than the fund earns, the corpus keeps shrinking, and at that pace it runs out after about **17 years**. ![₹1 crore earning 10% with ₹1 lakh a month withdrawn has about ₹60 lakh left after 10 years, but runs out after about 17 years.](https://finniki.com/blog/media/dc06a605b4ddeafb34fa0acc.jpg) That is fine if he needs the income for a set period. For income that must last decades, withdraw less. ## How much can you safely withdraw through an SWP? About **4 to 8% of the corpus a year**, and closer to **4%** if the income must last for decades or keep up with inflation. Withdraw ₹15,000 a month from ₹10 lakh, which is 18% a year, and even a 10% return cannot keep up: the corpus disappears quickly. ![A sustainable SWP takes about 4 to 8% of the corpus a year; 12% or more drains the fund.](https://finniki.com/blog/media/21033b386cbde88dbde7fc3b.jpg) A retiree with ₹50 lakh in a balanced fund and an SWP of ₹35,000 a month (about 8.4% a year) can draw income for a long time, but should review the amount every year rather than assume it is safe forever. ## How is an SWP taxed? Only the **gain** inside each withdrawal is taxed, not the whole amount, because part of every withdrawal is your own money coming back: - **Equity funds:** gains on units held more than a year are taxed at **12.5%**, and only on long-term gains above **₹1.25 lakh** a year; gains on units held up to a year at **20%**. - **Debt funds** (invested from April 2023): gains are taxed at your **slab rate**. Compare a fixed deposit: **₹1 crore at 6%** pays about **₹50,000 a month** in interest (the episode said ₹10 lakh, which would pay only about ₹5,000), and all of that interest is taxed at your slab rate every year. An SWP of ₹1 lakh a month from ₹1 crore draws more, and in the early years most of each withdrawal is your own capital, so the tax is far lower. The trade-off: an FD's capital is fixed, while an SWP's corpus can fall in a bad market. ## Who should use an SWP? - **Retirees.** When the salary stops but the bills do not, an SWP from a balanced or debt-oriented fund can act as a pension, with the remaining money still growing to fight inflation. It is often a better plan than putting everything in FDs. - **Young professionals with a lump sum.** A ₹10 lakh bonus invested with a ₹10,000 monthly SWP can pay for subscriptions, the gym and weekends while the rest keeps working. - **Anyone who wants income without selling everything.** ## When can an SWP go wrong? Three ways: - **Withdrawing too much.** Take out more than the fund earns year after year and the corpus runs dry. - **Market falls.** When the NAV drops, the same withdrawal sells more units at low prices, which hurts the corpus most. Keep a year or two of withdrawals in a debt or liquid fund so you are not forced to sell equity in a crash. - **The wrong fund.** For income needed within two or three years, use debt or conservative hybrid funds, not equity. For an SWP lasting 10 to 15 years or more, some equity helps the corpus keep growing. ## FAQs ### What is an SWP? A Systematic Withdrawal Plan, which pays you a fixed amount at regular intervals from a mutual fund by selling units, while the rest stays invested. ### Is SWP better than an FD for monthly income? Often, for tax and growth: only the gain in each SWP withdrawal is taxed, while all FD interest is taxed at your slab rate. But an FD's capital is fixed, while an SWP's corpus can fall in a weak market. ### How much can I withdraw through an SWP? About 4 to 8% of the corpus a year, and nearer 4% if it must last for decades. ### How long will ₹1 crore last with a ₹1 lakh monthly SWP? At about 10% returns, roughly 17 years. After 10 years, about ₹60 lakh would remain. ### How is SWP taxed? Only the gain portion of each withdrawal. For equity funds held over a year, 12.5% on long-term gains above ₹1.25 lakh a year; for debt funds, your slab rate. ### Which fund is best for an SWP? Debt or conservative hybrid funds for short periods, and balanced or hybrid funds with some equity for SWPs that must last 10 years or more. ## Turn your savings into income How much you can draw, and from which funds, depends on your corpus and how long it must last. [Book a session](https://finniki.com/book) to plan your withdrawals, or find more episodes on [FinNiki videos](https://finniki.com/videos).