SWP vs FD: Which is Better for Regular Income & Tax Savings in India?

If you are looking for a regular income from your savings, two options usually come up: Fixed Deposits (FDs) and Systematic Withdrawal Plans (SWPs).

FDs have been around forever and feel safe. SWPs are relatively new concepts and linked to mutual funds, so they sound a bit more “market-driven”. Both can give you regular cash flow. But the way they work, and what you get in the long run, is quite different.

In today’s blog, we will break down these terms in a simple way.

What is an SWP 

In an SWP, you invest a lump sum in a fund, and instead of withdrawing everything at once, you take out a fixed amount at regular intervals, say every month. The rest of your money stays invested in the selected mutual fund scheme and continues to grow.

How does it work?

You first invest a lump sum amount in a mutual fund scheme, let’s say INR 50 lakh. 

On your chosen date, the fund automatically sells pre-decided units from your portfolio the proceeds are credited back to your account. 

For example, if you decide to put a trigger of 0.75% on the amount of INR 50 Lakh, you will get INR 37,500 in the bank account.

The remaining units continue to stay invested and earn market returns.

Features of SWP 

• Regular Income: SWP lets you withdraw a fixed amount, monthly, quarterly, or at any frequency you choose. It is a good option if anyone wants a steady cash flow from their investments. 
• Flexible Withdrawal: You can increase or decrease the withdrawal amount. Change the frequency and pause or stop the SWP anytime. There is no fixed structure like traditional products. 
• Helps in Better Cash Flow Planning: SWP is useful for planning regular expenses like monthly household costs, retirement income, and education expenses. It brings discipline to your investment journey 
• No Lock-in: Most mutual funds, except ELSS, do not have any lock-in period. So you can start or stop your SWP whenever you want to without any restrictions. 
• Taxation: One of the biggest advantages of SWP is how it is taxed. You do not pay tax on the full withdrawal amount. Instead, you only pay tax on the gains portion.

For example, you invested INR 50 lakh and started withdrawing from the next day. The taxation for the first year will be short-term capital gain at a flat 20%, and from the next year onwards, the taxation will be long-term at 12.5% over and above 1.25 lakh.

Read Also: Best Investment Plan for Monthly Income in India

What is a Fixed Deposit?

In a fixed deposit, you put a lump sum in a bank for a fixed time, and the bank gives you a fixed interest rate.

You can either take the interest regularly (monthly, quarterly), or let it accumulate and withdraw the interest as well as the principal at maturity

How Does it Work?

You invest a one-time principal amount, let’s say, INR 50,000 for a chosen period, which usually ranges from 7 days to 10 years. 

The interest rate is locked in at the opening and does not change, even if the market fluctuates later. For example, you decided to invest with ABC bank that is offering 7.5% interest rate on FDs. In this case, your interest will be locked at 7.5%. 

Once the period ends, the bank returns your original principal and the interest accumulated. 

Features of Fixed Deposit 

• Fixed and Predictable Returns: When you do an FD, the interest rate is locked in, which implies that you already know in advance how much you will earn at the end. You can easily calculate the final amount using the Pocketful FD calculator online. 
• Choice of Tenure: You can choose how long you want to keep your money invested. It can be as short as a few days or as long as 10 years. So you can plan it based on your needs.
• Loan Facility: Instead of breaking your fixed deposit, you can also take a loan or overdraft against it, which can be 90-95% of the principal amount and that too usually at a lower interest rate.
• 4. Low Risk: Since FDs are not linked to the stock market, their returns remain unaffected by the market movement. It does not matter whether the market is up or down; your money is safe. 
• Taxation: The interest you earn is fully taxable as per your income tax slab. Also, banks may deduct TDS if your interest crosses a certain limit. 

For example, if you have an FD of INR 10 Lakh at 7.5%, and you fall into 30% tax bracket, your tax will be INR 22,500. 

SWP vs FD – Table of Differences

S. No	Basis	Fixed Deposit (FD)	Systematic Withdrawal Plan (SWP)
1	Nature of Returns	Fixed and guaranteed	Market-linked, not guaranteed
2	Risk Level	Very low risk	Depends on the fund (low to moderate or high)
3	Income Type	Fixed interest payout	Flexible withdrawal amount
4	Taxation	Full interest taxed as per the slab	Only the capital gains portion is taxed
5	Inflation Impact	May struggle to beat inflation	Better chance to beat inflation over time
6	Liquidity	Premature withdrawal allowed with a penalty	High liquidity, can withdraw anytime
7	Flexibility	Limited flexibility	Highly flexible (change, pause, stop anytime)
8	Capital Protection	Capital is usually safe	Not guaranteed, depends on market performance
9	Best Use Case	Short-term goals, capital safety	Long-term income, retirement planning
10	Suitable For	Conservative investors	Investors who are willing to take some risk for better returns
11	Impact of Market	No impact	Directly impacted by market performance
12	Loan Facility	Loan available against FD	No loan facility like an FD

How to Choose Between FD & SWP

1. What do you need the money for?

Start with the basic question. If you just want to park money safely for a short time, FD is good enough, or if you want a regular income over many years, SWP can work better

2. How much risk are you okay with?

This is important. If you do not want to see your investment value fluctuate, choose an FD. If you are comfortable with small ups and downs, go with SWP

 3. Taxation

FD interest is fully taxed every year, and in SWP, only a part of what you withdraw is taxed.  So if you are in a higher tax bracket, SWP can save you some money over time.

4. Investment Horizon

For short-term needs, FD is considered a safe option, and for long-term income, SWP has an edge since over longer periods, inflation eats into fixed returns. SWP at least gives your money a chance to grow.

To wrap it up, if you are still unsure, do not overthink it. You can split your money:

• Keep some in FD for stability
• Use SWP for better long-term income

Read Also: Best SWP for Monthly Income in India

Conclusion 

FD and SWP are both useful in their own way; it comes down to what you need from your money.

If you want complete peace of mind, fixed returns, and no ups and downs, an FD feels comfortable and reliable. There is no thinking involved once you invest.

SWP, on the other hand, is a bit more flexible. It gives you regular income, but also keeps your money working in the background. Over time, this can make a difference, especially when you factor in inflation and taxes.

You do not have to pick just one. Many people use both, FD for stability and SWP for better long-term income.

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