How it works
You invest a corpus in a fund and set a withdrawal amount and date. On each date the fund sells enough units to raise that amount at the day's NAV and pays you. The rest stays invested and continues to earn (or lose). An SWP is the mirror image of a SIP.
How long does a corpus last? (illustration)
Take a corpus of ₹1 crore and an initial withdrawal of ₹50,000 a month (6% of the corpus a year). How long it lasts depends on the returns the fund earns and whether you raise the withdrawal:
| Return assumed | Flat ₹50,000 withdrawals | Withdrawals rising 5% a year |
|---|---|---|
| 5% a year | About 35 years | About 17 years |
| 6% a year | More than 60 years | About 19 years |
| 7% a year | Never runs out in the model | About 21 years |
| 8% a year | Never runs out in the model | About 23 years |
The point of the second column is inflation. A flat ₹50,000 buys less each year. If you raise the withdrawal 5% a year to keep up, the same corpus has a much shorter life. These are assumptions, not forecasts: real returns arrive unevenly, and a bad market early in the withdrawal phase can hurt far more than the average suggests (sequence risk). Try your own numbers in the SWP calculator.
How an SWP is taxed
Each withdrawal is a redemption. Only the gain part of the units sold is taxed, not the whole amount, and units are sold first-in, first-out. For an equity fund, the long-term gain part is taxed at 12.5% above ₹1.25 lakh a year, so a modest withdrawal can be tax-light. For debt funds bought after 1 April 2023 the gain part is taxed at your slab rate. See capital gains on mutual funds. Exit load may apply to young units.
SWP vs IDCW payout
| SWP | IDCW (dividend) option | |
|---|---|---|
| Amount | You choose | The fund decides, if at all |
| Regularity | Fixed date | Not guaranteed |
| Source | Units sold; part principal | Distributed from the fund; NAV drops |
| Tax | Only the gain part | Taxed as income at slab rate |
SWP vs fixed-deposit interest
An FD pays a contracted rate on a fixed principal. An SWP draws from a market-linked pool: the value can rise or fall, and the payout depends on you, not on a rate. An SWP from an equity or hybrid fund can beat an FD over time but carries market risk, so keep a safety buffer in liquid or short-term debt for a year or two of withdrawals.
Sensible practice
- Keep the withdrawal rate modest relative to the corpus and review it yearly.
- Split the corpus: a debt or hybrid fund for the next 2 to 3 years of withdrawals, equity for the rest.
- Put the SWP date after the NAV is stable (avoid starting withdrawals on a day you may need to sell into a fall).
Questions people ask
What is SWP in mutual funds?
A plan that takes a fixed amount from your fund each month.
Is SWP better than FD?
They are different. An FD is predictable; an SWP can earn more but carries market risk.
Is SWP taxable?
Yes, on the gain part of each withdrawal.
Can I stop or change an SWP?
Yes.
What is the difference between SIP and SWP?
SIP puts money in regularly; SWP takes money out regularly.
Keep going
Run the numbers
SWP calculator
Also useful: SWP on real fund data, Retirement calculator
How we can help
Sources
- Standard annuity calculation with monthly compounding
- ICICI Prudential AMC Tax Reckoner 2025-26
- AMC SWP facility documents.
Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. This page is general education, not personal advice. Back to the full glossary