A Systematic Withdrawal Plan (SWP) is a mutual fund facility that allows investors to withdraw a fixed amount at regular intervals—monthly, quarterly, or annually—from their investment. This approach provides a steady income stream while keeping the remaining investment intact, potentially continuing to grow over time.
Last updated on 23 May 2024. Before updated on 30 Jan 2023.
Table of Contents
What is SWP in Mutual Funds?
SWP full form is a Systematic Withdrawal Plan. It is a convenient way to get regular income from mutual funds.
SWP in mutual fund is a facility (option) to withdraw ( take income) money in a systematic manner (Frequency and withdrawal duration chosen by the investor ).
The best part is the flexibility it offers. You can customise the withdrawal amount and frequency, etc.
How SWP Works? – with Example
When you initiate an SWP, you specify:
- Withdrawal Amount: The fixed sum you wish to receive at each interval.
- Frequency: How often you want to withdraw (e.g., monthly, quarterly).
- Start Date: When the withdrawals should commence.
On each scheduled date, the mutual fund redeems the necessary number of units based on the current Net Asset Value (NAV) to provide you with the specified amount. The remaining units continue to stay invested, allowing for potential capital appreciation.
How does SWP work Example
Suppose Bestii invested Rs 15 lakh in SBI Equity Hybrid ( Aggressive Hybrid Fund) on 1/12/2016 and started receiving a monthly income of Rs. 10000 until May 2024. His money value would be Rs. 22.34 lac in May 2024.
Now, suppose he chose to withdraw a 12000 monthly income, then his corpus value in May 2024 would be 19.30 lac.( As discussed earlier, investors have to mention the withdrawal amount.)
So he decided to withdraw Rs. 15000 and his corpus value remained at Rs 14.90 lac.
This signifies that investors can withdraw a high monthly income from mutual funds. But the expectations should be kept moderate.
Thus, SWP is not a predefined scheme, it is an option/service given in all mutual fund schemes.
How to Set Up an SWP in Mutual Funds
- Choose a Mutual Fund Scheme: Select a fund that aligns with your risk tolerance and investment goals.
- Invest a Lump Sum: Make an initial investment in the chosen mutual fund.
- Initiate SWP: Through your mutual fund provider or investment platform, specify the withdrawal amount, frequency, and start date.
- Monitor and Adjust: Regularly review your SWP to ensure it continues to meet your financial needs, making adjustments as necessary.
Let’s understand it with the SWP example of Mr. Bestii.
Suppose Mr. Bestii has 15 lakhs in a mutual fund scheme. He needs a monthly income from mutual funds.
He initially filled out an SWP form ( or applied online) to start monthly income.
Unlike FD and other income instruments, here in SWP the withdrawal amount is not fixed. The investor has to mention the withdrawal amount, withdrawal frequency, SWP date ( the date from which he wants to have income), and SWP period i.e. for how long you want to take income from money. ( please refer image below).
Step-by-Step process to start SWP in a Mutual Fund
STEP 1
Deposit a lump sum amount in a mutual fund Scheme or use existing investments in a mutual fund scheme.
STEP 2
Fill a SWP Form( or do it online) mentioning your scheme name, withdrawal amount each interval and date from which you wish to start taking your withdrawal amount. *( refer image given above)
You have to mention SWP cancellation/completion date as well.
STEP 3
Start getting income from your fund (after a month/period).
NOTE: It usually takes a month time to get income from your SWP Request. However, you can withdraw your money anytime.
How to choose the Best SWP in Mutual Funds
One can start SWP from any kind of mutual fund scheme such as debt funds, liquid funds, equity-oriented hybrid funds, debt-oriented hybrid funds, balanced advantage funds, or equity mutual funds. But risk and return change with the type of mutual fund scheme you choose.
SWP Return rate from different kind of funds, with example:
Best SWP in Mutual Fund (Low duration fund)
Deposited Amount – 15 lakh
Monthly withdrawn amount – Rs 10000
Duration for which SWP taken – 5 years
Value at the end of 5 year – 15.17 lakh
SWP Interest rate from low duration fund – 8.45%
Low Duration Funds are the funds having Macaulay duration of 6 -12 months and hence low risk funds.
| Period | SWP Start Date | Total Amount Invested | Total Amount Withdrawn | Scheme Market Value(Rs.) | Scheme SWP Returns | Benchmark SWP Returns |
| 01-Jan-2014 To 01-Jan-2019 | 1-Jan-14 | 1,500,000.00 | 600,000.00 | 1,517,894.87 | 8.45 % | 10 % |
| NAV Date | NAV | Units | Cash Flow | Amount | SWP Value |
| 1-Jan-14 | 235 | 6380 | -1500000 | -1500000 | |
| 3-Feb-14 | 237 | 6338 | 10000 | 10000 | 1500874 |
| 3-Mar-14 | 238 | 6296 | 10000 | 10000 | 1500598 |
| 2-Apr-14 | 241 | 6254 | 10000 | 10000 | 1505469 |
| 2-May-14 | 242 | 6213 | 10000 | 10000 | 1506575 |
| 2-Jun-14 | 245 | 6172 | 10000 | 10000 | 1509561 |
| 2-Jul-14 | 246 | 6131 | 10000 | 10000 | 1510992 |
| 1-Aug-14 | 248 | 6091 | 10000 | 10000 | 1510645 |
| 1-Sep-14 | 250 | 6051 | 10000 | 10000 | 1511577 |
| 1-Oct-14 | 252 | 6011 | 10000 | 10000 | 1513044 |
| 3-Nov-14 | 254 | 5972 | 10000 | 10000 | 1516590 |
| 1-Dec-14 | 256 | 5933 | 10000 | 10000 | 1517209 |
| 1-Jan-15 | 257 | 5894 | 10000 | 10000 | 1517267 |
| 2-Feb-15 | 259 | 5855 | 10000 | 10000 | 1519255 |
| 2-Mar-15 | 261 | 5817 | 10000 | 10000 | 1518241 |
| 6-Apr-15 | 263 | 5779 | 10000 | 10000 | 1522784 |
| 5-May-15 | 265 | 5741 | 10000 | 10000 | 1522178 |
| 1-Jun-15 | 267 | 5704 | 10000 | 10000 | 1523087 |
| 1-Jul-15 | 269 | 5667 | 10000 | 10000 | 1523661 |
| 3-Aug-15 | 271 | 5630 | 10000 | 10000 | 1526566 |
| 1-Sep-15 | 273 | 5593 | 10000 | 10000 | 1526285 |
| 1-Oct-15 | 275 | 5557 | 10000 | 10000 | 1527416 |
| 2-Nov-15 | 277 | 5521 | 10000 | 10000 | 1528129 |
| 1-Dec-15 | 278 | 5485 | 10000 | 10000 | 1526927 |
| 1-Jan-16 | 280 | 5449 | 10000 | 10000 | 1526295 |
| 1-Feb-16 | 282 | 5414 | 10000 | 10000 | 1524640 |
| 1-Mar-16 | 283 | 5378 | 10000 | 10000 | 1523091 |
| 4-Apr-16 | 287 | 5343 | 10000 | 10000 | 1531956 |
| 2-May-16 | 288 | 5309 | 10000 | 10000 | 1530533 |
| 1-Jun-16 | 290 | 5274 | 10000 | 10000 | 1530535 |
| 1-Jul-16 | 292 | 5240 | 10000 | 10000 | 1532035 |
| 1-Aug-16 | 295 | 5206 | 10000 | 10000 | 1536747 |
| 1-Sep-16 | 297 | 5173 | 10000 | 10000 | 1538053 |
| 3-Oct-16 | 300 | 5139 | 10000 | 10000 | 1540591 |
| 1-Nov-16 | 301 | 5106 | 10000 | 10000 | 1539373 |
| 1-Dec-16 | 305 | 5073 | 10000 | 10000 | 1548808 |
| 2-Jan-17 | 306 | 5041 | 10000 | 10000 | 1541894 |
| 1-Feb-17 | 308 | 5008 | 10000 | 10000 | 1543181 |
| 1-Mar-17 | 309 | 4976 | 10000 | 10000 | 1539848 |
| 3-Apr-17 | 312 | 4944 | 10000 | 10000 | 1540854 |
| 2-May-17 | 313 | 4912 | 10000 | 10000 | 1537889 |
| 1-Jun-17 | 315 | 4880 | 10000 | 10000 | 1537966 |
| 3-Jul-17 | 317 | 4849 | 10000 | 10000 | 1537730 |
| 1-Aug-17 | 320 | 4817 | 10000 | 10000 | 1540086 |
| 1-Sep-17 | 322 | 4786 | 10000 | 10000 | 1539585 |
| 3-Oct-17 | 323 | 4755 | 10000 | 10000 | 1536894 |
| 1-Nov-17 | 325 | 4724 | 10000 | 10000 | 1534428 |
| 4-Dec-17 | 326 | 4694 | 10000 | 10000 | 1531908 |
| 1-Jan-18 | 327 | 4663 | 10000 | 10000 | 1526473 |
| 1-Feb-18 | 328 | 4633 | 10000 | 10000 | 1521529 |
| 1-Mar-18 | 330 | 4603 | 10000 | 10000 | 1519614 |
| 3-Apr-18 | 334 | 4573 | 10000 | 10000 | 1525521 |
| 2-May-18 | 334 | 4543 | 10000 | 10000 | 1517916 |
| 1-Jun-18 | 335 | 4513 | 10000 | 10000 | 1512143 |
| 2-Jul-18 | 338 | 4483 | 10000 | 10000 | 1513942 |
| 1-Aug-18 | 340 | 4454 | 10000 | 10000 | 1514537 |
| 3-Sep-18 | 342 | 4425 | 10000 | 10000 | 1514146 |
| 1-Oct-18 | 343 | 4395 | 10000 | 10000 | 1509730 |
| 1-Nov-18 | 346 | 4367 | 10000 | 10000 | 1508986 |
| 3-Dec-18 | 348 | 4338 | 10000 | 10000 | 1511596 |
| 1-Jan-19 | 351 | 4309 | 10000 | 10000 | 1511913 |
| 15-Jan-19 | 352 | 4309 | 1517895 | 1517895 | 1517895 |
Here in the above example
- In above calculations Mr. Ram had deposited Rs 15 lakh initially in Low Duration Fund and took income of Rs 10000 each month for 5 years.
- The value of your money after completion of 5 year is Rs 15.17 lakh.
- Please notice that few units are sold on monthly basis and money is liquidated and paid to Mr. Ram.
Best SWP in Mutual Fund ( Dynamic Asset Allocation Fund):
For simplicity the entire long chart is not shown, but only given in short format.
| Period | SWP Start Date | Total Amount Invested | Total Amount Withdrawn | Scheme Market Value(Rs.) | Scheme SWP Returns | Benchmark Market Value | Benchmark SWP Returns |
| 01-Jan-2014 To 01-Jan-2019 | 1-Jan-14 | 1,500,000.00 | 600,000.00 | 1,943,052.15 | 12.93 % | 1,980,472.55 | 13.29 % |
Best SWP in Mutual Fund ( Balanced Debt Fund)
| Period | SWP Start Date | Total Amount Invested | Total Amount Withdrawn | Scheme Market Value(Rs.) | Scheme SWP Returns | Benchmark Market Value | Benchmark SWP Returns |
| 01-Jan-2014 To 01-Jan-2019 | 1-Jan-14 | 1,500,000.00 | 600,000.00 | 1,825,405.80 | 11.76 % | 1,529,047.89 | 8.58 % |
- From the above charts you can figure it out that how SWP works.
- You may get different return and different maturity value from different schemes.
- The return totally depends on risk taken by the scheme.
Read more about SWP Plan MF : Smart way to Earn Monthly Income
How much return is expected from SWP
SWP Interest rate is never fixed. This interest rate depends on many factors such as type of scheme, market conditions, when you take withdrawal and many other factors.
However, for a rough estimate one can expect a 4%-6% return from a liquid fund, 4%-8% from a debt oriented scheme.
Whereas monthly withdrawal from a balanced, dynamic asset allocation fund varies from 7% – 9%. Please note that these interest rate completely depends on market. In a negative market one can register higher loss in the scheme and this may result in faster capital erosion.
Here you should be mentally prepared to have fluctuated maturity value.
There is risk involved in the SWP in mutual funds. It is not 100% safe as Govt.schemes.
Benefits of a Systematic Withdrawal Plan (SWP)
Taking monthly income from mutual fund through SWP is a great option. One may get better returns from SWP as compared to traditional options such as LIC Annuity Plans, POMIS, SCSS and PMVVY.
- Assured fixed income: Once you set a withdrawal amount, you get a fixed amount at a specified date.
- Timely Payment : Just like dividend payment uncertainty, you don’t have to wait for the income to arrival. You get a fixed income. (Read more about dividend mutual funds)
- Better tax-efficient investment : Monthly income from SWP offers you lower taxation as compared to other investments.
- One time Easy setup process: you can set up SWP in minutes. You do not need to AMC office for clarifications.
- Existing Investment Use: There is no need to withdraw your money from existing mutual fund. One can just start taking income from existing MF Schemes.
SWP works best with the simultaneous investment in equity and debt oriented portfolios. One can use bucket strategies to get best out put from their MF investments.
Please connect with us for making a Retirement Plan Strategies Preparation.
SWP Disadvantages
Although taking monthly income from SWP in mutual fund is a great option. But still it has some disadvantages also.
Let’s look at the Systematic withdrawal plan disadvantages:
- The overall return rate is not guaranteed and depends on market ( equity/debt) conditions and other factors.
- The maturity value depends on the return generated by the scheme and amount of withdrawal you have taken.
- Whether your scheme books profit or loss, withdrawal will be given to you each month on chosen date.
- In case scheme is making loss/profit, the relevant units are sold and money given to you.
- The investor can erode a higher number of units in bearish market.
Is SWP income Taxable?
Yes, income from SWP is taxable. certainly, SWP (Systematic Withdrawal Plans) in mutual funds offer tax advantage over other investments.
Whenever you are taking income from a mutual fund, you are withdrawing a part of your capital and interest over the amount. You do this by cancelling/selling a few units. Here, only the interest part ( or the capital gain) is taxed. This helps you to have lower tax implications of SWP in mutual funds
| Type of Fund | Holding Period less than 3 Year | More than 3 year |
| Debt Fund/ Liquid/Low Duration/ Debt Balanced Fund | Profit will be added to you income and taxed as per you income tax slab rate | LTCG – 10% with indexation Or 20% without indexation |
| Equity mutual fund | Holding Period less than 1 Year | More than 1 year |
| Equity MF/Equity oriented Balanced Fund/Dynamic Asset Allocation Fund | 15% of Profit | Long Term Capital Gain more than Rs 1 lac is taxable @10% |
Things to consider before investing in SWP Mutual Funds
- Exit Load: Exit load is an important factor to consider. Try to invest in the funds with zero exit loads.
Tips: Liquid mutual Fund and low-duration category of funds usually have zero exit load. You can consider investing in those funds for initial years.
In case you chose another category fund, then it is advisable to start withdrawal after the completion of the exit load period. Till that time, you may invest in the liquid fund for one year or so.
2.Choose Withdrawal date carefully: Suppose you require money between first 5 days of the month, up to 5th of every month, choose SWP date as 31st of each month.
Tips: Sometimes money payment may be delayed due to some holiday or any other operational issues. So, it is wiser to choose date 3-4 days prior to your cash flow date.
3. Equity Mutual Funds for SWP: SWP from Equity mutual fund can be highly risky in volatile markets. Avoid taking SWP from Equity Mutual funds.
- The money value can erode substantially due to market volatility.
- You may get lower return due to market movement to lower cycle.
- Usually all equity mutual fund have exit load of 1% if you withdraw before completion of one year.
- You can get low return or loss on your money.
- You may live in uncertainty due to market volatility.
- Consider Past performance: You should consider past performance of last one, three, five year for the fund. You should also analyse the fund manager performance. Is the fund deviating from its usual path or not.
- Risk Stats: Various parameters like risk return ratio and risk stats also should be checked.
- Combining Diversified Equity Fund: Usually this corner is left untouched or highly done part, in case of senior citizens.
- Depending on your dependency on your invested money and your risk bearing capacity a senior citizen should consider investing at least 10%-20% in diversified equity mutual fund so that he can make his money grow. Investing in equity should be considered seriously if you don’t want to feel cash crunch later in your life.
- Take Help of a Financial Planner: Taking help of a professional will always help you to take right decisions.
FAQ
Which is best SWP Fund?
For SWP, investor may consider low duration/liquid/ Balanced Debt or Dynamic Asset allocation Fund. Choice of fund totally depend on life stage, risk bearing capacity and other factors such as taxation and dependency of money.
What is the best way to invest money for regular income and good return on money in long run?
You can consider investing in low duration/liquid/ Balanced Debt or Dynamic Asset allocation Funds and along with that invest your money in diversified equity funds.
From Which company should I buy fund to start SWP?
For starting a SWP you can consider any AMC Fund with zero exit load.
I want Rs 30000 per month. How much amount I must deposit to get SWP of said amount?
If you wish that your money value remain same after completion of duration you can consider 7-8% return on your invested amount.
Is SWP risky?
If you choose the right fund and right strategy than SWP is not risky, but you should be aware of your money and stats of the fund so that you can take informed decision.
There is no need to worry as long as if you have invested your money in liquid or low duration funds as these are debt funds which has no lena dena from market.
In case of balance and Dynamic Asset allocation fund as you have made investment for 5 long years and the market movement is momentary. There is nothing to worry but be cautious.
Can I erode my money through SWP?
You can erode your money value if you take high monthly withdrawal amount as compared to rate of return. To compensate money value erosion you may consider 10-20% amount of money investing diversified equity funds.
please watch the video to understand the concept
Is SWP good or bad?
SWP is a very good option to opt for regular income from mutual fund. Appropriate return expectation and choosing best SWP mutual fund is the key to success in SWP mutual fund.
If we compare monthly income and return from SWP mutual fund with other investments, then the returns are far better.
Will my money exhaust after completion of duration or after few years?
In some cases money value may erode if withdrawal amount is high as compared to interest rate. You can choose to withdraw higher amount from your mutual fund scheme if you consider investing 10-20% money in diversified equity fund so that eroded value of money can be compensated by the return from equity funds.
What is the best way to take SWP from mutual funds?
Best way is to take regular income from debt mutual fund and invest some part in diversified equity fund. https://bestinvestindia.com/multi-asset-allocation-fund/
please watch the video to understand the concept.
Conclusion:
A Systematic withdrawal Plan (SWP) mutual fund scores over other traditional method for taking regular payout. This option gives inflation adjusted return to you and better way of investing. SWP is a convenient way to withdraw your money and fulfilling your regular monthly needs.
Now in my view the best SWP for monthly income is low risk mutual funds such as liquid, ultra low duration, low duration or short term funds. These funds have low risk and return profile and are not stock market linked.
To get the best output from SWP mutual fund, one can invest in bucket strategy in which one keep one basket for safe and steady income from debt funds and another basket for appreciation.
Thus one can have laddoos in both the hands. On one hand taking safe income and on another hand money growth.
Finding it difficult to start with, Talk to the expert to choose best SWP Plan for you. ( 15 minutes no obligation meeting)
Additional Reading
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