SWP Calculator

Drawing an income without draining the corpus

Start with ₹10,00,000, withdraw ₹10,000 a month, and assume the remaining balance earns 8%. After ten years you will have taken out ₹12,00,000 — more than you started with — and still hold ₹3,90,180.

That is the whole appeal of a systematic withdrawal plan. Because the untouched portion keeps growing, withdrawals can exceed the original corpus without exhausting it, provided the withdrawal rate stays below the return rate by a sensible margin.

An SWP is the mirror image of a SIP: you instruct the fund to redeem a fixed amount on a fixed date each month and credit it to your bank account. The units are sold at whatever NAV prevails, so the number of units redeemed varies while the rupee amount stays constant.

How the balance evolves

Each month runs the same two steps:

1. Growth: balance × (1 + monthly rate) 2. Withdrawal: subtract the fixed amount

Repeat for the full period. Whether the corpus grows or shrinks depends entirely on how the withdrawal compares against the growth.

The break-even is worth knowing: at 8% annual growth, ₹10,00,000 earns about ₹80,000 a year, or roughly ₹6,667 a month. Withdrawing less than that means the corpus grows. Withdrawing exactly that keeps it flat. Withdrawing ₹10,000, as here, draws it down slowly — which is the intended behaviour when you have a defined horizon rather than a perpetual need.

Why sequence of returns matters

The arithmetic above assumes a steady 8%. Real markets do not cooperate, and for a portfolio being *withdrawn from*, the order of returns matters enormously — far more than it does during accumulation.

A bad first few years is disproportionately damaging, because withdrawals are selling units at depressed prices, permanently removing capital that would otherwise have participated in the recovery. The same sequence of returns arranged with the bad years at the end can leave you with a substantially larger final balance despite an identical average.

The practical defences are to hold two to three years of planned withdrawals in a debt or liquid fund so equity is never sold into a crash, to keep the withdrawal rate conservative, and to be willing to reduce withdrawals temporarily after a large fall.

Who it suits

Retirees converting a corpus into monthly income while keeping control of the capital — unlike an annuity, which is irreversible, an SWP can be stopped, changed or fully redeemed at any time.

Anyone needing a predictable payout from investments without selling in irregular chunks.

Investors managing tax. This is an underrated advantage: each withdrawal is treated as a redemption of units, so only the *gain* portion is taxable, not the whole amount. Compared to fully taxable interest from a deposit paying the same income, the effective tax can be considerably lower.

Reading the result

The balance remaining assumes a constant return, which is a simplification. Run the calculation at a lower rate to see the downside — at 6% rather than 8%, the same plan leaves far less, and at 4% the corpus would be close to exhausted.

A useful rule from retirement research: a withdrawal rate of about 4% of the starting corpus annually, adjusted for inflation, has historically been sustainable over thirty-year horizons in well-diversified portfolios. ₹10,000 a month from ₹10,00,000 is 12% a year — sustainable for a decade as shown, but nowhere near sustainable indefinitely.

Also note the plan holds withdrawals flat in rupee terms. Over ten years at 6% inflation, ₹10,000 a month will buy roughly what ₹5,600 buys today. A realistic retirement plan needs withdrawals that rise over time, which shortens corpus life considerably.

Common mistakes

Setting the withdrawal above the return rate and not checking the horizon. The corpus will run out; the only question is when.

Ignoring inflation. A flat withdrawal loses roughly half its purchasing power over twenty years at 6%.

Starting an SWP from a pure equity fund. Sequence risk is severe. A hybrid or conservative allocation suits withdrawal phases better.

Confusing an SWP with a dividend plan. Dividends are declared at the fund's discretion and taxed at slab rates; an SWP is predictable and taxed only on gains.

Starting withdrawals immediately after investing. Equity units redeemed within twelve months attract 20% short-term tax, so a new corpus generally benefits from a waiting period.