What is SWP (Systematic Withdrawal Plan)?

A Systematic Withdrawal Plan (SWP) allows you to withdraw a fixed amount from your mutual fund investment at regular intervals. It provides steady income and is the reverse of a Systematic Investment Plan (SIP).

In SWP, you invest a lump sum in a mutual fund and schedule fixed periodic withdrawals—monthly, quarterly, or annually. The fund redeems the required number of units, while the remaining investment continues to earn returns.

Can I change the withdrawal amount or frequency in SWP?

Yes, most mutual fund platforms allow you to modify the withdrawal amount and frequency at any time based on your financial needs.

Yes. SWP withdrawals are subject to capital gains tax. For equity funds, LTCG tax applies if held for over 1 year, while STCG tax applies for shorter periods. Taxation varies for debt funds based on holding period and fund type.

Can I use SWP for retirement planning?

Absolutely. SWP is widely used in retirement planning to generate a regular income stream while keeping the remaining capital invested for long-term growth.

How can I set up an SWP?

You can start an SWP by investing a lump sum in a mutual fund and selecting the SWP option via the fund’s website, investment platform, or financial advisor. Set the withdrawal amount and frequency as per your preference.

What happens if my mutual fund performs poorly during SWP?

If fund performance declines, more units may be redeemed to maintain your withdrawal amount. This may reduce your corpus faster, especially in prolonged market downturns.

Is there a minimum amount for SWP?

Yes, most mutual fund houses require a minimum SWP withdrawal amount—usually ₹500 or ₹1,000 per installment. Check with your fund for exact details.

Can I stop my SWP anytime?

Yes, you can cancel or pause your SWP anytime by notifying your mutual fund or updating your request online. Ensure this aligns with your financial goals before making changes.

SWP Calculator - Calculate Systematic Withdrawal Plan Returns

SWP - A Comprehensive Guide

What is a SWP?

A Systematic Withdrawal Plan (SWP) is a financial planning tool that allows investors to withdraw a fixed amount of money from their mutual fund investments at regular intervals. It works in the opposite way compared to a SIP. While SIPs involve regularly investing small amounts, SWPs allow you to withdraw a fixed amount periodically, rather than redeeming your entire investment at once. SWP enables fixed, periodic withdrawals, thereby ensuring a steady cash flow.

SWPs are particularly useful for retirees or individuals who need regular cash flow from their investments. By setting up an SWP, investors can ensure that they receive a consistent amount of money at predetermined intervals, which can help in budgeting and managing expenses.

Key Features of SWP

Flexibility: Allows withdrawal of fixed amounts over time, offering a steady income stream.
Choice of Frequency: Withdrawals can be scheduled monthly, quarterly, or annually based on your liquidity needs.
Taxation: Only the capital gains portion of each withdrawal is subject to tax, not the full amount withdrawn.
Growth Potential: Even as you withdraw, your remaining units stay invested and may benefit from market growth.
Applicability: Works with most mutual fund schemes (equity, debt, hybrid, etc.)

How Does SWP Work?

To set up an SWP, you first need to invest a lump sum amount in a mutual fund scheme. After that, you can choose the amount you want to withdraw and the frequency of withdrawals. For example, if you invest ₹10,00,000 in a mutual fund and set up an SWP of ₹10,000 per month, you will receive ₹10,000 every month from your investment. The mutual fund house redeems a certain number of units to meet your withdrawal request, and the remaining units will continue to stay invested in the fund.

The withdrawn amount may be subject to capital gains tax, depending on the type of mutual fund and the holding period of your investment. For example, if you withdraw from an equity fund after one year, the long-term capital gains (LTCG) tax will apply. If you withdraw from a debt fund before three years, the short-term capital gains (STCG) tax will apply.

SWPs are flexible, allowing investors to adjust the withdrawal amount or frequency as needed. You can also stop the SWP at any time, but it’s essential to plan your withdrawals carefully to avoid depleting your investment too quickly.

Since mutual funds are market-linked investments, the withdrawal amount may vary depending on the NAV (Net Asset Value) of the scheme at the time of withdrawal. In simple terms, the amount withdrawn depends on the value of your mutual fund units. For example, if the NAV is ₹50, then 200 units (₹10,000 ÷ ₹50) will be redeemed to meet the withdrawal amount of ₹10,000.

The formula used to calculate the amount withdrawn is:

SWP Return Formula:

The formula used to calculate SWP returns is:

A = B × [(1 + r/n)^n - 1] / (r/n)

Where:

A = Final Amount (after interest)
B = Periodic Withdrawal Amount
r = Annual Interest Rate
n = Investment Period in Years

Types of SWP

Fixed Amount SWP: The investor sets a fixed amount to be withdrawn periodically. This is the most common type of SWP, where you receive a fixed sum every month or year.
Fixed Percentage SWP: Instead of withdrawing a fixed amount, you can choose to withdraw a fixed percentage of your mutual fund's balance at regular intervals. This method is more dynamic as it adjusts with the performance of your mutual fund and market conditions.
Variable SWP: In this type of SWP, the amount withdrawn varies based on certain criteria, such as market conditions, fund performance, and investor preferences.

Benefits of SWP

Steady Income: SWP provides a predictable income stream, making it ideal for people in need of regular cash flow.
Tax Efficiency: Depending on the type of mutual fund and duration of investment, SWP can be tax-efficient compared to lump sum withdrawals.
Capital Preservation: SWP allows you to withdraw money without fully depleting your capital, as the remaining investment continues to grow.
Flexible Amount & Frequency: Choose how much you want to withdraw and how often. Customize your withdrawals based on your needs.

Pros

Provides a regular income without depleting investments
Perfect for retirees or those needing steady cash flow
Allows continued growth of the invested corpus
Customizable withdrawal amount and frequency
There is no tax deducted at source for SWPs.

Cons

Subject to market volatility, which can affect withdrawal amounts
Risk of capital depletion if not planned properly
Tax implications on capital gains may reduce the withdrawal amount
Requires careful planning to avoid running out of funds

Key Considerations for SWP

Market Risk: NAVs fluctuate; during market downturns, more units are redeemed to maintain fixed withdrawal.
Discipline Required: Avoid impulsive changes; plan for long-term sustainability.
Capital Depletion: If withdrawal exceeds returns, the corpus will deplete over time. So, never exceed 4-6% of corpus annually to avoid depletion.
Taxation: Short-term vs long-term capital gains taxation applies depending on holding period and fund type.
Inflation: Fixed withdrawals may lose value in real terms over time.

Tax Implications of SWP

SWPs from mutual funds are subject to capital gains tax on the gains portion of the withdrawal, not the entire amount. Here’s a breakdown of the tax structure for various types of mutual funds:

1. Tax on Equity Funds

Short-Term Capital Gains (STCG): If you sell equity mutual fund units within 1 year, the gains are taxed at 15%.
Long-Term Capital Gains (LTCG): If you hold equity mutual funds for more than 1 year, gains over ₹1 lakh are taxed at 10%, with no indexation benefits.

2. Tax on Debt Funds

For investments made before April 1, 2023, if you sell debt mutual fund units within 3 years, the gains are taxed at your income tax slab rate. If held for more than 3 years, the gains are taxed at 20% with indexation benefits.
For investments made on or after April 1, 2023, all gains from debt mutual funds are taxed at your income tax slab rate, irrespective of the holding period, and there are no indexation benefits.

3. Tax on ELSS (Equity Linked Savings Schemes)

ELSS funds offer tax benefits under Section 80C, allowing you to claim deductions up to ₹1.5 lakh in a financial year. It has a 3-year lock-in.
The tax treatment of gains from ELSS is the same as that of equity funds, i.e., 10% LTCG above ₹1 lakh in a financial year.

SWP vs SIP

While both Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP) are regular, disciplined financial tools, their purposes are opposite.

Data Table
Feature	SIP	SWP
Purpose	Invest regularly to grow wealth	Withdraw regularly to generate income
Transaction Type	Investment (fund inflow)	Withdrawal (fund outflow)
Target Audience	Investors looking to build wealth	People needing regular income
Risk	Market risk (growth-oriented)	Market risk (income-focused)

Conclusion

Systematic Withdrawal Plans (SWPs) provide an excellent way to create a consistent income stream from mutual fund investments. Whether you are a retiree or just looking for regular withdrawals, SWP can provide the right balance between income and capital preservation. When implemented wisely—considering tax implications, market conditions, and withdrawal rates—SWPs can help maintain financial stability while preserving your investment corpus.

SWP Calculator