FD Vs SWP: Investors looking for a stable monthly income often compare Fixed Deposits (FDs) and Systematic Withdrawal Plans (SWPs) in Mutual Funds.
If you have ₹22 lakh to invest, you might wonder which option will generate better returns while providing a steady income. Let’s analyze both FD Vs SWP options in detail.
1. Understanding FD with Monthly Payout
A Fixed Deposit (FD) is a secure investment where you deposit a lump sum for a fixed tenure and earn interest. If you choose a monthly interest payout, the bank credits the interest to your account every month.
How FD with Monthly Payout Works
- You invest ₹22 lakh in an FD.
- The bank offers an interest rate of 7% per annum (approx.).
- Monthly payout = ₹22,00,000 × (7/100) ÷ 12 = ₹12,833 per month.
- The principal remains unchanged, but you don’t get any additional corpus growth.
- Interest earned is taxable as per your tax slab.
Pros of FD with Monthly Payout
✔ Low Risk – Bank FDs are secure and ideal for conservative investors.
✔ Stable Income – Guaranteed monthly income without market risks.
✔ No Market Dependency – Returns don’t fluctuate based on stock market performance.
Cons of FD with Monthly Payout
❌ No Wealth Growth – Only interest is paid; the principal remains the same.
❌ Inflation Impact – Fixed returns may not beat inflation over time.
❌ Taxable Interest – The interest earned is taxed, reducing net income.
2. Understanding SWP in Mutual Funds
A Systematic Withdrawal Plan (SWP) allows investors to withdraw a fixed amount from a mutual fund investment at regular intervals while keeping the remaining amount invested for growth.
How SWP Works
- You invest ₹22 lakh in an equity-oriented balanced mutual fund.
- The fund generates an average annual return of 12% (assumption based on past performance).
- You withdraw ₹12,833 per month (same as FD payout).
- The remaining amount continues to grow, generating wealth over time.
Pros of SWP in Mutual Funds
✔ Wealth Creation – The remaining corpus continues to grow.
✔ Tax Efficiency – Long-term capital gains (LTCG) on equity funds are tax-free up to ₹1 lakh per year and taxed at 10% beyond that.
✔ Inflation-Beating Returns – Mutual funds generally offer higher returns than FDs over the long term.
Cons of SWP in Mutual Funds
❌ Market Risk – Returns are not guaranteed as they depend on market performance.
❌ Initial Volatility – Short-term fluctuations can affect the value of your investment.
❌ Not Suitable for Short Term – Best for a minimum horizon of 5+ years.
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3. Comparison: Which Option Generates More Corpus?
| Feature | FD with Monthly Payout | SWP in Mutual Funds |
|---|---|---|
| Returns | ~7% per annum (fixed) | ~12% per annum (expected) |
| Monthly Payout | ₹12,833 (fixed) | ₹12,833 (withdrawal) |
| Corpus Growth | No growth (fixed principal) | Corpus grows over time |
| Taxation | Interest taxed as per slab | LTCG taxed at 10% after ₹1 lakh exemption |
| Inflation Protection | No | Yes |
| Risk Level | Very Low | Moderate |
Corpus After 10 Years
- FD: ₹22 lakh remains unchanged.
- SWP (assuming 12% returns): Even after withdrawing ₹12,833 per month, the corpus can grow to ₹40-45 lakh (approx.).
4. Which One Should You Choose?
✔ Choose FD if:
- You need 100% safety and don’t want market risks.
- You are in a high tax bracket and don’t mind paying tax on interest.
- Your goal is only stable income without wealth creation.
✔ Choose SWP in Mutual Funds if:
- You want higher returns and long-term wealth growth.
- You are comfortable with moderate market risks.
- You want tax-efficient income.
Final Verdict
After all in FD Vs SWP, The SWP plan win, But If your primary concern is safety and guaranteed income, FD with monthly payout is a good option. However, if you want steady income along with long-term wealth growth, SWP in mutual funds is a better choice. Over time, SWP can significantly increase your corpus, making it a smart investment strategy.
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