When you want a monthly income from a lump sum, the two real options for most Indians are a monthly-payout FD or an SWP from a mutual fund. They can hand you the same amount each month — but the tax you pay and what's left of your money years later are worlds apart. Here's the straight comparison.
Same monthly cheque, very different tax
Take ₹1 crore. A monthly-income FD at 7% pays about ₹58,000 a month before tax. But FD interest is fully taxable at your slab — in the 30% bracket that ₹58,000 becomes about ₹40,000 in hand. Every single month.
Now run an SWP from a balanced fund and withdraw the same ₹58,000 a month. Only the GAIN portion inside each withdrawal is taxed — and in the early years most of what you take out is simply your own capital returning, so the taxable slice is small. On equity-oriented funds, long-term gains are taxed at just 12.5% above a ₹1.25 lakh yearly exemption. The result: for the same ₹58,000, you keep noticeably more after tax.
What's left after 10 years
The FD principal never moves — after 10 years of payouts your ₹1 crore is still exactly ₹1 crore (worth much less in real terms thanks to inflation). The SWP's leftover corpus, by contrast, has stayed invested the whole time. If the fund earned more than you withdrew, your balance is actually LARGER than where you started, even after paying yourself every month. That growing balance is the SWP's real edge.
So when should you pick each?
- Choose an FD if you need a guaranteed, fixed payout and can't tolerate any month-to-month uncertainty — safety of capital is absolute, and that peace of mind is worth the higher tax and zero growth.
- Choose an SWP if you can accept market ups and downs in exchange for lower tax, an income that can grow, and a corpus that keeps compounding. Best for money you won't need in full for many years.
- Many retirees do both: an FD ladder for the essentials that must never wobble, and an SWP for the rest so it keeps growing.
The honest verdict: for guaranteed safety, FD; for tax efficiency and long-term growth, SWP. Run both on your own numbers before deciding.
SWP Calculator — how long will your corpus last?FD Calculator — exact maturity and payoutHow to set up an SWP that doesn't run dryFrequently asked questions
- Does an SWP pay more than an FD?
- For the same monthly withdrawal, an SWP usually leaves you with more after tax — FD interest is taxed at your full slab (up to 30%), while an SWP taxes only the gain portion of each withdrawal, at 12.5% on long-term equity gains above ₹1.25 lakh a year. The SWP also keeps your corpus invested and growing, whereas an FD's principal stays flat.
- Is an SWP safer than an FD?
- No — an FD is safer. FD payouts and principal are guaranteed, while an SWP draws from a market-linked fund whose value moves up and down. The SWP's advantage is tax and growth, not safety. Many people split their money between the two.
- How much monthly income from a ₹1 crore FD?
- At about 7%, a ₹1 crore monthly-income FD pays roughly ₹58,000 a month before tax — around ₹40,000 after tax in the 30% slab. An SWP withdrawing the same ₹58,000 keeps more after tax because only the gain portion is taxed.