SWP vs FD Calculator

Two retirees each have 50 lakh and want 30,000 a month. One puts the money in a mutual fund and sets up a systematic withdrawal plan. The other puts it in a bank fixed deposit. On paper the FD’s 7 percent looks safe and the fund’s 10 percent looks better, but the answer depends on tax, because the two are taxed in different ways. This page models both side by side, month by month, so you can see what is left after tax.

How the SWP is modelled

At the start of each month the withdrawal is taken from the balance. The cost part of the money withdrawn is the proportion of the balance that is original investment, and the gain part is the rest, so early withdrawals are mostly cost and later ones contain more gain. The gain parts are added up for the year, the yearly allowance is subtracted and the remainder is taxed at the capital-gains rate; the tax is deducted from the balance at the end of each year. The remaining balance grows at the fund return divided by 12.

How the FD is modelled

For the FD the page takes the withdrawal first, then adds a month of interest at the FD rate divided by 12 on what is left. That interest is taxed at your slab rate straight away, and only the after-tax amount is added to the balance. This is a simplification of a real deposit, where interest is taxed each year as it accrues, but it keeps the two cases comparable and shows the main effect of the higher slab-rate tax.

A worked example

The default is 50,00,000, withdrawals of 30,000 a month for 15 years, a fund return of 10%, tax of 12.5% on gains above 1,25,000 a year, an FD rate of 7% and a 30% slab. In both cases 54,00,000 is withdrawn in total. The SWP ends with 95,58,991 after paying 1,19,570 of tax in total. The FD ends with 24,27,289 after paying 12,11,695 of tax on interest. The SWP is ahead by 71,31,702. The table shows year one at 51,43,457 against 48,80,878. In the lower-tax example, a 20% slab, a 9% fund and a 7.5% FD, the SWP ends with 76,13,400 against 35,02,284, ahead by 41,11,116.

Why the tax matters so much

Only part of each SWP withdrawal is taxed, and at a lower rate after an allowance, whereas every rupee of FD interest is taxed at the slab. For a person in the 30 percent slab the FD’s 7 percent becomes about 4.9 percent, which is less than the 7.2 percent that a 30,000 monthly withdrawal takes from the starting pot each year. The deposit therefore shrinks. If your slab is low, the gap narrows, and for someone paying no tax the FD does much better.

What the model cannot show

The SWP return is assumed constant. In real markets a fund can fall in the early years just when withdrawals are being taken, and the damage is hard to repair. The FD, by contrast, offers a fixed rate for the term, though the rate may be lower when it is renewed. The result is a comparison of average outcomes, not of risk, and the right choice for a person who cannot tolerate falls may be a mix of both.

Limits

Exit loads, indexation or holding-period rules, surcharge and cess, and the tax treatment of debt funds are not modelled. The allowance and rate are inputs, so you can reflect other rules, but check the current rules before relying on the result. If either balance runs out, the page warns you.

Related tools

• SWP Calculator models the withdrawal plan without tax, with a yearly raise.
• FD Calculator shows how a deposit grows when you leave the interest in.
• Capital Gains Calculator works out the tax on a one-off sale of units.
• Retirement and FIRE Calculator sizes the pot that these plans draw on.