Systematic Withdrawal Plan (SWP)
An automated facility offered by mutual funds that allows you to withdraw a specific sum of money at pre-determined intervals (monthly, quarterly, etc.). It is the exact opposite of an SIP. While SIP builds wealth, SWP consumes it in a structured manner.
Capital Erosion
A situation where your withdrawal rate is higher than your portfolio's growth rate. This forces you to eat into your principal amount, causing the total balance to shrink over time until it hits zero. Avoiding rapid capital erosion is the primary goal of SWP planning.
Perpetual Withdrawal Rate
The maximum amount you can withdraw annually without ever reducing your original principal. For example, if your fund earns 10%, withdrawing 8-9% ensures your corpus stays intact or grows slightly, leaving a legacy for your heirs.
Sequence of Returns Risk
The risk that the market crashes right when you start your SWP. Withdrawing money from a shrinking portfolio accelerates depletion because you have to sell more units to get the same cash. This is the biggest danger to a retiree's portfolio.
Exit Load
A penalty charged by mutual funds if you redeem units within a specific period (usually 1 year). Smart SWP planning involves setting up withdrawals after the exit load period expires to avoid paying this 1% fee unnecessarily.
Capital Gains Tax (LTCG/STCG)
The tax you pay on the profit portion of your withdrawal. In India, this is split into Short Term (STCG) and Long Term (LTCG). For equity funds held >1 year, LTCG is 12.5% above ₹1.25 Lakhs, making it very tax-efficient.
Inflation-Adjusted Income
The concept that your withdrawal amount needs to increase every year to maintain the same purchasing power. A flat ₹50,000 monthly withdrawal will feel like ₹25,000 in 10-12 years due to inflation. Advanced planning requires increasing your SWP amount annually.
Corpus Longevity
The number of years your savings will last given a specific withdrawal rate. This is the single most important metric for retirement planning. If your corpus longevity is 15 years but you expect to live for 25 more years, you have a shortfall.