After decades of building wealth through SIPs, the question becomes: how do you draw income from that wealth without depleting it? The answer is the Systematic Withdrawal Plan — the mirror image of a SIP, and arguably even more powerful.
You invest a lump sum in a mutual fund. You instruct the fund house to redeem a fixed amount every month — say ₹25,000. The fund sells just enough units to generate that payment. If your corpus is growing faster than your withdrawals, the principal actually increases over time.
Financial research (the Trinity Study) suggests that withdrawing 4% of your portfolio annually is sustainable indefinitely with a balanced portfolio. For India, given higher inflation, a safer withdrawal rate might be 3-3.5%.
If your corpus is ₹2 crores: Safe annual withdrawal = ₹6-8 lakhs = ₹50,000-67,000/month. The corpus, invested in equity-debt hybrid funds, continues growing.
SWP from equity mutual funds held for 1+ year: Long-term capital gains at 12.5% (above ₹1.25 lakh exemption). Compare to FD interest taxed at slab rates (30% for high earners). For a retiree in the 30% bracket, SWP is dramatically more tax-efficient than FD income.
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