SWP vs FD for Monthly Income: ₹50 Lakh Over 20 Years, After Tax

Rekha-ben retired this year after 26 years at a private school in Vadodara. No pension, but PF, gratuity and the money from a plot near Savli she sold last year add up to ₹50 lakh, and she wants about ₹29,000 a month from it. The branch manager has an easy answer: a senior citizen FD with monthly interest, ₹28,998 on the first of every month, nothing to watch. Her son-in-law in Pune has another: put it in a mutual fund and take the same amount through an SWP, a systematic withdrawal plan where the fund sells a few of your units every month and pays you a fixed sum. "Less tax, and your money keeps growing."

Both are selling something real. But the tax argument, the one people lead with, is worth exactly ₹0 for Rekha-ben. For a retired officer with a ₹15 lakh pension, the same argument is worth over ₹10 lakh. So this post puts the same ₹50 lakh through both routes for 20 years, after tax, for four different kinds of retirees, and then looks hard at what can go wrong with each.

The setup: same ₹50 lakh, same ₹28,998 a month

To keep it fair, both routes pay out exactly the same amount every month, and we only change what happens underneath.

• FD route: ₹50 lakh in a non-cumulative FD at 7% with monthly payout. As of October 2026, large banks pay seniors roughly 6.75% to 7.05% (SBI's card shows 7.05% for 5 to 10 years, including its We-care extra). Banks pay monthly interest at a slightly discounted rate, so the payout is ₹50,00,000 × ((1 + 7/400)^1/3 − 1) = ₹28,998 a month, or ₹3,47,976 a year. We assume she renews at the same 7% for 20 years. That is a big assumption, and we come back to it.
• SWP route: the same ₹50 lakh in one mutual fund that is taxed like an equity fund (more on why that matters below), withdrawing the same ₹28,998 every month. We assume 8% a year, which is the default on our SWP calculator. It is an assumption, not a rate anyone promises.
• Tax: new regime, FY 2026-27 slabs, kept the same for 20 years.

If you are new to SWPs, our post on monthly income from mutual funds through an SWP covers how it works and how long ₹50 lakh can last at different withdrawals. Here we only do the head-to-head.

One small thing on the FD side. Put the same ₹50 lakh in a cumulative FD at 7% for a year and the FD calculator shows ₹3,59,295 of interest. The payout version gives ₹3,47,976. The difference is simply that interest you take out every month can't compound.

How an SWP works on its own, units, NAV and what decides how long the money lasts, is explained in SWP kya hai.

Twenty years later: what is left in each

Both routes pay out ₹69,59,520 over 20 years (₹28,998 × 240). Here is the balance underneath, before any tax:

The FD never grows, because every rupee of interest leaves the bank. The SWP fund earns a little more than you take out, so the extra stays in and compounds. After 20 years that's about ₹25.5 lakh more, on paper.

Now the part the bank brochure doesn't mention. At 6% inflation, which is what most households plan with, the FD's ₹50 lakh in 2046 buys what about ₹15.59 lakh buys today. And the ₹28,998 that pays the bills in year one is worth about ₹9,042 of today's money in year twenty. The SWP doesn't fix this either, since the withdrawal is flat in both. It just leaves a bigger pile to raise the withdrawal from later.

What each SWP instalment is made of

This is where the tax story starts. An FD payout is 100% interest, and interest is income. An SWP payout is the fund house buying back some of your units. Part of the ₹28,998 is your own money coming back, and only the rest is gain.

The working is simple when you invest once. If the NAV has grown by a factor of G since you bought, then out of each withdrawal, ₹28,998 ÷ G is your cost and the remainder is gain. In month 1, G is barely above 1, so almost all of it is your own money. By month 240, at 8% a year, G is close to 5, so most of it is gain.

Over the full 20 years, ₹34.67 lakh of what she withdraws is her own money and ₹34.93 lakh is gain. So the line "SWP instalments are mostly capital" is true in the early years and not true later. That matters, because the tax gap is widest at the start and narrows as the years go by.

The tax rules, as of October 2026

FD interest is added to your income and taxed at your slab rate every year. The bank deducts 10% TDS once interest from that bank crosses ₹1 lakh in a tax year for a senior citizen, or ₹50,000 for others (section 393 of the Income-tax Act, 2025). TDS is only an advance. The real tax is whatever your slab says.

Mutual fund withdrawals are taxed as capital gains, and only on the gain part. How much depends on the type of fund:

• Equity-oriented funds, which means at least 65% in Indian listed shares. Some hybrid funds keep their equity share at 65% or more for exactly this reason, so check how your fund is taxed before you start. Units sold within 12 months: 20% on the gain (section 196). Held longer: 12.5% on long-term gains above ₹1.25 lakh a year (section 198). Plus 4% cess.
• Debt funds (more than 65% in debt and money market) bought on or after 1 April 2023: the gain is treated as short-term and taxed at your slab rate, however long you hold (section 76). For a high-slab investor, a debt fund SWP has almost no tax edge over an FD, except that you are taxed only on the gain part and only when you withdraw.
• Hybrids in between (35% to 65% equity): long-term after 24 months, then 12.5%. Before that, slab rate. Fund houses publish yearly tax reckoners that list every category, like this one for 2026-27.

Two details decide the numbers below. First, the zero-tax rebate up to ₹12 lakh income (section 156) does not apply to tax on long-term equity gains. Section 198 says the rebate is set only against tax on the rest of your income. Second, if your other income is below ₹4 lakh, the basic exemption limit in the new regime, the unused part can absorb those gains. Our example uses the equity-taxed route throughout. A debt fund SWP would sit much closer to the FD.

The tax bill over 20 years, for four kinds of retirees

Same ₹50 lakh, same ₹28,998 a month, same 7% FD and assumed 8% fund. The only thing that changes is what else the person earns. FD tax is the extra tax the interest adds, worked out on the income tax calculator with and without it. SWP tax uses the gain split from the table above.

Read it row by row, because the answer flips.

No other income. FD interest of ₹3,47,976 is below the ₹4 lakh exemption, so no tax at all. The SWP gains are also absorbed by that unused exemption. The famous tax advantage is zero.

Pension of ₹6 lakh. Pension plus FD interest comes to about ₹9.5 lakh, well inside the ₹12 lakh rebate, so the FD costs nothing. The SWP is the one that pays: the rebate doesn't cover long-term gains, so from year 7, when yearly gains cross ₹1.25 lakh, she pays 12.5% plus cess on the excess. ₹7,840 in year 10, ₹19,460 in year 20. Here the FD actually wins on tax, by ₹1.73 lakh.

Pension of ₹15 lakh. Now every rupee of interest lands in the 15% and 20% slabs. The FD costs ₹63,280 a year, and the SWP's tax stays small. Over 20 years the gap is about ₹10.9 lakh in favour of the SWP.

Other income of ₹25 lakh. Interest is taxed at 31.2% with cess. The FD's ₹28,998 becomes about ₹19,950 in hand. Over 20 years that's ₹21.71 lakh of tax against ₹1.73 lakh.

The SWP's own tax is the same ₹1,73,170 in the last three rows because the gain is the same and the 12.5% rate doesn't depend on your slab. It works out to ₹3,040 in year 1 (short-term gains at 20%), nil in years 2 to 6, and then rising from year 7.

One honest footnote. The SWP still holds ₹75.54 lakh at the end, and ₹60.20 lakh of that is gain nobody has paid tax on yet. Sell it all in one year and the bill is about ₹7.66 lakh, which leaves ₹67.87 lakh. Still well ahead of ₹50 lakh, but the tax is deferred, not gone.

TDS, Form 121 and the paperwork

With ₹50 lakh in one bank, the FD pays ₹3,47,976 of interest a year, far above the ₹1 lakh senior limit. So the bank cuts 10% TDS, ₹34,798 a year, even for Rekha-ben, who owes nothing. She can stop it by giving the bank Form 121 at the start of each tax year. It replaced Forms 15G and 15H, and a senior can give it whenever the tax on her estimated income is nil (Income Tax Department FAQs). Miss it and she gets the money back only through her ITR.

For the ₹15 lakh pensioner the opposite problem shows up. TDS at 10% doesn't cover tax at 15 to 20%, so the balance has to be paid as advance tax or at return time. The step-by-step is in our post on tax on FD interest, TDS and Form 121.

An SWP has no TDS for resident investors. Section 393 doesn't apply TDS when the income is a capital gain. You can download a capital gains statement from the fund house or its registrar, and the gains go into your return. Our upcoming post on SWP tax rules works through the tax on each instalment.

The risk side, said plainly

Everything above made the SWP look good in three rows out of four. Now the part that decides whether it suits you at all.

What can go wrong with the FD. The rate is fixed only until maturity, and bank FDs run 10 years at most. If rates are lower when she renews, the payout drops. Renew ₹50 lakh at 6% instead of 7% and the monthly interest falls from ₹28,998 to ₹24,876. Then there's insurance. DICGC covers ₹5 lakh per depositor per bank, principal and interest together, so ₹50 lakh in one bank is mostly uninsured. Many retirees split it across a few banks anyway. And inflation, as we saw, quietly eats the flat payout.

What can go wrong with the SWP. The 8% is our assumption, not a contract. The fund can fall, and you keep selling units while it is down. Here is the same ₹28,998 a month under different outcomes, all run on the SWP calculator (for the crash row, the first year is worked out month by month and the remaining 19 years are run on the calculator):

Look at the last two rows. At a steady 6%, the money is still there after 20 years, just smaller. But one bad first year, followed by a perfectly decent 8%, leaves her with almost nothing. The balance drops to ₹34,43,964 after year one, and ₹3,47,976 a year is then over 10% of what is left. The withdrawals keep selling units at low prices, and the later good years can't make up for it. This is called sequence risk, and it is the single biggest reason an SWP is not an FD with better tax.

A fund that keeps 65% or more in equity can fall that much. Debt funds swing far less, but then they lose the equity tax treatment. So the choice is never just "SWP or FD". It's how much market risk you can carry for the tax and growth you get back.

A mix: half and half, with a cushion

Most retirees don't need to pick one side. Split the ₹50 lakh in two:

• ₹25 lakh in FDs with monthly payout at 7%: ₹14,499 a month, and the principal stays put.
• ₹25 lakh in an equity-oriented hybrid fund, with an SWP of ₹14,499 a month.

Same ₹28,998 a month in total. After 20 years at an assumed 8%, the SWP half has ₹37,76,800, so the total is about ₹62.77 lakh. If the fund falls 25% in the first year, the SWP half is down to ₹1,14,654 by year 20, but the FD half still holds ₹25 lakh. The total is about ₹26.15 lakh, much better than ₹2.29 lakh.

On tax, the ₹15 lakh pensioner's FD bill drops from ₹63,280 to ₹27,140 a year, and apart from a little short-term tax in year 1, the SWP half's gains stay inside the ₹1.25 lakh exemption until year 17. Its tax over 20 years is about ₹5,440.

The mix also gives you a practical lever. When markets are down, you can stop the SWP for a year and break one FD instead, so you are not selling units at the worst time. A simple way to set this up is to keep two or three years of the SWP's withdrawals (about ₹3.5 lakh to ₹5.2 lakh here) in short FDs as a cushion, and refill it from the fund in good years.

For anyone 60 or above, the FD half can partly be the Senior Citizens' Savings Scheme, which pays 8.2% for October to December 2026 (small savings rates) with a limit of ₹30 lakh per person (Department of Posts order), though it pays quarterly, not monthly. Our senior citizen FD guide covers the senior rates, the ₹1 lakh TDS limit, SCSS and Post Office MIS side by side, so we won't repeat it here. The SCSS calculator shows the quarterly amount for your deposit.

Who should pick which

Most people fit one of these:

• Little or no other income, and this money is everything. FD (and SCSS, if you are 60 or above) does the job. The tax saving from an SWP is nil or close to it, and a bad first year could hurt for the rest of your life. If you want some growth, keep the fund part small.
• A pension or rent that keeps you under ₹12 lakh. The FD is tax-free for you, and the SWP isn't. Choose the SWP only for growth and inflation, not for tax.
• A pension of ₹15 lakh or more, or still working. The FD tax bill runs into lakhs over the years, and an equity-taxed SWP saves most of it. Still, keep a few years of withdrawals in FDs so a crash doesn't force you to sell.
• You won't touch the principal for 20 years and want it to grow. A mix, with the fund part sized to what you could watch fall 25% without panicking.
• You need every rupee of the ₹28,998 from month one, with no room to cut back. Lean towards fixed income. An SWP works best for people who can take less in a bad year.

Before you sign anything, run your own numbers. Put your amount and withdrawal into the SWP calculator at 6% as well as 8%, and put your pension plus the FD interest into the income tax calculator. If the FD tax comes out nil, you've learned the most useful thing in this post: for you, the SWP's tax edge is zero, and the decision is only about growth and risk.

For general information, not as investment or tax advice. Rates and rules change, so check the latest before you decide. Tell us if something here is out of date. Editorial policy · Contact