When you withdraw from a portfolio, the order of investment returns can affect how much money remains. An early fall can leave fewer assets invested for the recovery, especially when withdrawals continue during the downturn. This is called sequence of returns risk. It is easiest to see by comparing two paths with exactly the same returns in opposite order.
Two portfolios with the same returns
Both portfolios start with ₹10 lakh and pay ₹1 lakh at each year-end after the year’s return. In the first path, the portfolio gains 20% in year one, reaching ₹12 lakh before the withdrawal and ₹11 lakh after it. A 20% fall in year two brings it to ₹8.80 lakh before the second withdrawal and ₹7.80 lakh after it.
In the second path, a 20% fall in year one takes the portfolio to ₹8 lakh before the withdrawal and ₹7 lakh after it. The 20% recovery in year two brings it to ₹8.40 lakh before the second withdrawal and ₹7.40 lakh after it. Both paths paid out ₹2 lakh, but their ending balances differ by ₹40,000. With no withdrawals, both would end at ₹9.60 lakh.
Test how your withdrawal plan responds
Start with the SWP calculator to see what a steady-return assumption implies for your opening balance, monthly withdrawal and time horizon. Then use a simple year-by-year worksheet to model a separate scenario with weak returns near the start. Apply each year’s return to the opening balance, subtract the planned year-end withdrawal and carry the remaining balance into the following year. Compare when the balance first falls below a threshold you have chosen.
Decide whether your scenario uses fixed rupee withdrawals or amounts that increase with inflation. Hold that rule constant when comparing paths. You can run a separate scenario for fees, taxes or changes in spending and record which assumptions drive the largest differences. If you model monthly withdrawals, apply the timing consistently throughout. The two-year example above uses annual withdrawals and excludes fees and taxes.
What to look for in the results
Compare the remaining balance alongside the amount actually withdrawn. A lower balance can matter more if the period of weak returns lasts longer or if spending is hard to reduce. A worksheet can make that trade-off visible before you rely on a single projected return.
See the SEC investor glossary on sequence of returns risk and more guides in the Investment hub. Examples are educational estimates. Last updated 4 November 2026.
