Systematic Withdrawal Plan (SWP)
Turn your investment into regular cash flow
A Systematic Withdrawal Plan (SWP) is a smart way to withdraw a fixed amount of money from your mutual fund investment at regular intervals—monthly, quarterly, or annually. Unlike lump sum withdrawals, SWP offers you the flexibility to receive a steady stream of income, making it ideal for retirees or anyone looking for passive income from their investments.
Instead of withdrawing the entire corpus, the units are redeemed partially to match the chosen withdrawal amount, allowing the remaining investment to continue growing.
✅ Key Benefits of SWP in Mutual Funds
1. Regular Income Flow
SWP provides consistent cash flow, making it perfect for retirees, homemakers, or anyone needing monthly income from mutual funds.
2. Capital Preservatio
Only a part of your corpus is withdrawn, while the remaining continues to be invested—helping you preserve capital and grow it simultaneously.
3. Rupee Cost Averaging in Reverse
Just like SIP (Systematic Investment Plan) helps in averaging purchase cost, SWP helps in averaging the sale/redemption price of mutual fund units.
4. Customizable Withdrawals
You can set your own withdrawal frequency and amount—making SWP flexible to suit your financial goals.
5. Tax-Efficient Withdrawals
Unlike interest from FDs or pensions, which are fully taxable, SWP allows partial taxation (only capital gains are taxed).
👥 Who Should Consider Doing an SWP?
Retired Individuals seeking a fixed monthly income.
Homemakers or Non-Earning Spouses looking for supplementary income.
Parents funding child’s education or expenses.
Investors with a large corpus who want to systematically withdraw without depleting their investment rapidly.
Anyone wanting passive income without touching the principal fully.
💼 SWP Taxation Rules in India (As per current Income Tax Laws)
1. Tax is Applicable Only on Capital Gains
When you withdraw through SWP, you are redeeming mutual fund units. Tax is calculated only on the capital gains portion of the redeemed amount.
2. Different Rules for Equity & Debt Funds
🔹 Equity-Oriented Funds (holding ≥ 65% in equity):
Short-Term Capital Gains (STCG): If units are held for less than 12 months – taxed at 15%.
Long-Term Capital Gains (LTCG): If held for more than 12 months – gains up to ₹1 lakh per financial year are tax-free, beyond that taxed at 10% (without indexation).
🔹 Debt Funds:
As per new tax rules (from April 1, 2023), all capital gains on debt funds (regardless of holding period) are added to your income and taxed as per your income tax slab rate.
3. TDS on SWP for NRIs
For Non-Resident Indians (NRIs), TDS is applicable on SWP withdrawals as per mutual fund norms and income tax laws.
📘 Example: How SWP Works in Mutual Funds
Mr. Patil, a retired professional, has invested ₹10,00,000 in a mutual fund scheme. He opts for a Systematic Withdrawal Plan (SWP) to receive ₹10,000 per month for his regular expenses.
Let’s assume the mutual fund gives an average return of 8% per annum.
Initial Investment: ₹10,00,000
Monthly Withdrawal: ₹10,000
Annual Withdrawal: ₹1,20,000 (₹10,000 x 12)
Estimated Annual Return: ₹80,000 (8% of ₹10,00,000)
🧮 What Happens?
Every month, mutual fund units worth ₹10,000 are redeemed and credited to Mr. Patil's bank account.
Since the fund earns around ₹80,000 in a year and he withdraws ₹1,20,000, the excess ₹40,000 comes from the principal.
Over time, the corpus may reduce slowly, but a major part remains invested and growing.
With SWP, Mr. Patil gets:
✅ Regular Monthly Income - ✅ Capital Appreciation on Remaining Investment ✅ Better Tax Efficiency than Fixed Deposits
📝 Important Tips Before Starting an SWP
Choose low volatility funds (like debt or hybrid funds) for stable returns.
Ensure the withdrawal amount does not exceed the average returns, or else your principal will get eroded.
Always consult a financial advisor to plan tax-efficient withdrawals.
📌 Why is SWP Important?
Systematic Withdrawal Plans are a powerful tool for financial planning, especially in retirement. It allows you to enjoy regular income, benefit from market growth, and optimize tax savings—all while maintaining control over your investment.
If you're looking for regular income from mutual funds, an SWP could be the perfect fit for your financial goals.