If you’re looking for a steady stream of income from your investments, the SWP Plan (Systematic Withdrawal Plan in Mutual Funds) could be the perfect solution. Whether you’re a retiree, a salaried professional planning for early retirement, or someone wanting monthly passive income, this strategy helps you manage your money smartly without liquidating your entire investment.
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What is a Systematic Withdrawal Plan in Mutual Funds?
Systematic Withdrawal Plan in mutual funds is a regular income facility for investors. The Systematic Withdrawal Plan or SWP allows you to withdraw a fixed or variable amount on a pre-decided date (every month, quarter, or year). You may customise cash flows to withdraw either a fixed amount or the capital gains on the investment.
Think of it as a reverse SIP (Systematic Investment Plan). Instead of investing regularly, you withdraw regularly, and the remaining money stays invested to earn returns.
Here, you can either deposit a lump sum amount in a mutual fund or use your existing MF units to get monthly income.
Once you submit a SWP request, it takes a month’s time to start getting income from your money. However you are free to withdraw any amount before completion of this time.
You can start SWP from any category of fund, be it equity mutual fund, debt mutual fund, balanced mutual fund or liquid fund etc.
How does SWP work?
Suppose you invest ₹10 lakhs in a mutual fund and set an SWP to withdraw ₹10,000 every month.
Here’s what happens:
- Each month, the fund redeems units worth ₹10,000.
- The rest of your investment continues to grow based on the market performance.
- You get regular cash flow while still being invested.
This strategy is especially helpful for people looking for:
- Retirement income
- Child’s education support
- Supplemental monthly cash flow
Benefits of Systematic Withdrawal Plan in Mutual Funds
1.Regular & Predictable Income
You receive a fixed amount every month, making it easier to plan expenses.
2. Tax Efficiency
SWP is more tax-efficient than fixed deposits. Only the capital gains on withdrawn units are taxed.
- Short-term (if sold within 3 years for debt fund, 1 year for equity fund)
- Long-term (20% with indexation benefit for debt funds)
For equity funds: If held for more than 1 year, LTCG up to ₹1.25 lakh per year is tax-free.
3. Capital Preservation & Growth
The remaining units continue to grow, offering compounding benefits.
4.Customisable Frequency & Amount
You can choose:
- Withdrawal amount
- Frequency (monthly, quarterly, etc.)
- Start & end date
In a systematic withdrawal plan you can customize your withdrawal amount, withdrawal date and even frequency too.
For instance, as per the above example of Mr. Ram, can take a withdrawal of any amount 5K/10K/20K (or any other amount) from his 10 lac investment.
5.High Liquidity & Money Access
The deposited amount is highly accessible, thus in case of need, you can withdraw entire deposited amount and close SWP.
6. No TDS
TDS is not applicable on Mutual fund withdrawal. However, mutual funds withdrawal attracts capital gain Taxation.
Systematic Withdrawal Plan Example from Real Life
Let’s say Ramesh, a 60-year-old retiree, invests ₹20 lakhs in a balanced mutual fund. He sets an SWP to withdraw ₹15,000 per month.
- His monthly needs are met.
- His corpus continues to grow at 8%-10% annually.
- His taxation is low due to indexation and exemption limits.
This is financial planning with flexibility.
Points to Consider Before Starting Mutual Fund SWP Plan
- Market Risk: The value of your remaining corpus may fluctuate with market conditions.
- Return Expectations: Choose funds with consistent performance and low volatility.
- Withdrawal Rate: Ideally, keep withdrawals under 7%-8% annually to avoid depleting your capital.
Best Types of Mutual Funds for Systematic Withdrawal Plan
For a stable SWP plan, you can consider:
- Debt mutual funds (for lower risk)
- Hybrid funds (Balanced Advantage Funds)
- Equity funds (for long-term SWPs and growth)
How to Start an SWP Plan in Mutual Funds
- Choose a mutual fund suitable for SWP.
- Invest a lump sum amount.
- Register for SWP through your AMC or investment platform.
- Set withdrawal amount, frequency, and start date.
- Monitor regularly.
Most platforms like Zerodha, Groww, or AMCs like HDFC, ICICI, SBI, Axis make it easy to set up and manage.
Conclusion: Is SWP Plan Right for You?
If you’re looking for monthly income from mutual funds, the SWP plan is a flexible, tax-efficient, and smart choice. Whether you are retiring, planning for passive income, or need systematic cash flow, SWP can offer a reliable source of money while keeping your wealth invested.
Thinking about starting an SWP? Speak with a certified financial planner to get personalised advice based on your goals.
FAQs on SWP Plan in Mutual Funds
Q1: Is SWP safe?
A: SWP is as safe as the mutual fund you invest in. Choosing low-risk or hybrid funds can reduce volatility.
Q2: Can I change the withdrawal amount later?
A: Yes, most platforms allow you to modify or stop the SWP anytime.
Q3: Is SWP taxable?
A: Yes, only the gains portion is taxed, depending on the fund type and holding period.
Q4: Can SWP be done in SIP investments?
A: Yes, after accumulating enough corpus via SIP, you can initiate an SWP.
To understand – please read the post How SWP works.
