Systematic Withdrawal Plan vs Fixed Deposit
Systematic Withdrawal Plan (SWP) and Fixed Deposit (FD) are two common investment options that are mainly used for generating regular income. SWPs offer periodic withdrawals from market-linked investments, and on the other hand, FDs provide fixed and guaranteed returns with lower risk. Here is the detailed difference between these two, which helps you to choose the best option according to your income requirements.
What is a Systematic Withdrawal Plan?
A Systematic Withdrawal Plan (SWP) is a way by which you can take out a fixed amount of money from your mutual fund investment but at regular intervals like monthly, quarterly, or yearly. This method is very helpful if you want to manage regular expenses easily. In place of withdrawing the entire amount at one time, you can get a steady income while the remaining money stays invested.
For example: If you invest an amount of Rs.10 lakh, then you can choose to withdraw Rs.10,000 per month, and remaining money will still be invested, so that you can earn interest over time.
What is a Fixed Deposit?
A Fixed Deposit (FD) is a safe kind of investment where you can deposit your lump sum money in a bank or financial institution at a fixed interest rate for a fixed period of time. This method provides you with guaranteed returns, and it makes sure that your principal amount remains secure. The interest rate will depend on your preference as you can get monthly, quarterly, or at the end of the tenure.
For example: If you deposit Rs.2,00,000 in an FD for 2 years at an interest of 6.5% per year, then you will earn an estimate of Rs.13,000 per year, and after 2 years, you will get your Rs.2,00,000 back plus Rs.26,000 as interest.
Key Differences between SWP vs FD
Here are the main differences between SWP vs FD:
Feature | Systematic Withdrawal Plan (SWP) | Fixed Deposit (FD) |
Safety of Capital | Partial protection only; withdrawals reduce invested units and market risk applies | Principal is fully safe and earns fixed interest |
Returns | Variable, depends on mutual fund performance and market conditions | Predictable and fixed, up to around 8.15% per year |
Flexibility | Withdraw any amount anytime can pause or change withdrawals | Money is locked until maturity early withdrawal may incur penalty |
Diversification | Can choose different mutual funds (debt, hybrid, conservative equity) to reduce risk | Only a bank product; no variety |
Tax | Only the gains portion of withdrawals is taxed | Interest fully taxable with TDS |
Ideal For | People who want flexible tax benefits and higher growth potential | People who want safe and guaranteed returns |
Duration | Medium to long term (5+ years) for regular income plus growth potential | Short to medium term (1–5 years) when safety is important |
FAQs on Systematic Withdrawal Plan vs Fixed Deposit
- What is the main difference between SWP and FD?
The main difference between these two is that the FD provides you with fixed and guaranteed returns, while SWP provides regular withdrawals from mutual funds that can increase in value.
- Between FD and SWP, which option is safer?
Between these two, FD is safer because returns are guaranteed, while SWP depends on market performance.
- Can I get guaranteed returns in SWP?
No, you cannot get guaranteed returns in an SWP as they depend on the performance of the mutual fund and market conditions. The amount you receive can vary depending on how the fund performs over time.
- Which option is better for long-term income needs?
SWP is a better option for medium to long-term needs as it provides your regular income along with the possibility of growing your investment over time.
- Is there a penalty if I withdraw money early from the FD and SWP?
Fixed Deposits may impose penalties or reduce interest if you withdraw your money before the maturity period. But SWP generally allows withdrawals without penalties, but these are subject to fund rules.
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