Systematic Withdrawal Plan (SWP) is a method where investors can withdraw a fixed amount regularly from their mutual fund investment. It allows you to create a steady income stream without needing to redeem your entire investment. SWPs are especially helpful for retirees, people with irregular income, or those looking for predictable cash flows. Instead of receiving dividends or withdrawing lump sums, SWP offers flexibility and discipline.

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What Is an SWP?

An SWP is a tool offered by mutual funds that lets you withdraw a pre-decided amount at regular intervals—monthly, quarterly, or annually. This amount is deducted from your total mutual fund units. The main features include:

Fixed withdrawals irrespective of market fluctuations
Remaining units continue to stay invested
Ideal for long-term investors seeking passive income
Reduces the risk of emotional decision-making during market volatility

How Does SWP Work?

Let’s say you invest ₹10 lakhs in a mutual fund with a NAV of ₹10. This gives you 1,00,000 units. You decide to withdraw ₹5,000 every month.

If the NAV in Month 1 is ₹10.30, then 485 units will be redeemed.
In Month 2, if NAV drops to ₹9.70, 515 units will be redeemed.
This continues monthly, adjusting the number of redeemed units depending on NAV.

Formula:
Units Redeemed = SWP Amount ÷ NAV of the month

Your remaining units continue to grow as per market performance.

Key Benefits of Systematic Withdrawal Plan (SWP)

1. Steady Income

Investors can receive a fixed payout every month or quarter, making it perfect for retirees or freelancers.

2. Market Volatility Shield

As withdrawals are systematic, it prevents panic selling and helps stay invested during market ups and downs.

3. Customizable Schedule

You can choose the frequency of withdrawals (monthly, quarterly, etc.), offering flexibility based on your needs.

4. Tax-Efficient Withdrawals

Compared to fixed deposits or savings interest, SWPsmay offer better post-tax returns due to capital gains benefits.

5. No TDS Deduction

SWP proceeds are not subject to TDS, so you don’t have to worry about reclaiming excess tax.

Tax Treatment of SWP (Based on Fund Type)

Type of Mutual Fund

STCG (Short-Term Capital Gains)

LTCG (Long-Term Capital Gains)

Taxation Rule Summary

Equity (>65% in equity)

Taxed if held < 12 months

Taxed if held ≥ 12 months

STCG taxed as per slab; LTCG taxed at 10% without indexation

Debt funds (≤35% equity)

No holding period effect

Taxed at slab rate, both STCG and LTCG

Others (between 35%-65% in equity)

Taxed if held < 36 months

Taxed if held ≥ 36 months

STCG taxed at slab rate; LTCG taxed at 20% with indexation

What Is SWP in Mutual Funds?

SWP stands for Systematic Withdrawal Plan, a feature in mutual funds that lets investors withdraw a fixed amount of money at regular intervals—monthly, quarterly, or annually. Instead of taking out a lump sum, you redeem small portions of your investment over time. This gives you a steady income while your remaining units stay invested and continue to grow. It’s especially helpful for retirees or people who need regular payouts. You get control over how much and how often you withdraw, and you don’t need to time the market.

How Can You Start an SWP?

Choose a mutual fund scheme that allows SWP
Decide withdrawal amount and frequency
Submit an SWP request with your AMC or broker (like Motilal Oswal)
Withdrawals begin as per your schedule

SWP Calculation Formula (with Example)

Formula:
SWP Withdrawal = Amount to be redeemed ÷ Current NAV

Example:
If NAV = ₹10 and you want ₹5,000 monthly, units redeemed = ₹5,000 ÷ ₹10 = 500 units

NAV may vary, so units redeemed each month will also change.

Why Investors May Choose SWP During Rising Markets

In a rising or bullish market, the value of mutual fund units goes up over time. By using SWP, investors can withdraw a fixed amount each month while the remaining units increase in value. This means they benefit from capital growth and still enjoy regular income. It also reduces the risk of withdrawing too much during good market periods. Since fewer units are redeemed when NAV is higher, your total investment lasts longer. SWP during rising markets combines growth potential with stable cash flow, making it an attractive strategy.

Who Can Use SWP?

SWPs are great for:

Retirees needing regular income
Parents funding education or EMIs
Freelancers seeking stable cash flow
Anyone wanting passive income with reduced market stress

Frequently Asked Questions (FAQs)

Can I start an SWP in any mutual fund?

Most funds offer SWP but confirm with your AMC before starting.

Is SWP better than SIP?

SIP is for investing, SWP is for withdrawing. Both have different purposes.

Is there any minimum amount for SWP?

Usually ₹500 or ₹1,000, but it varies by fund house.

Can I change the SWP amount later?

Yes, you can modify or stop your SWP anytime.

Are there exit loads in SWP?

Depends on the fund’s terms. Some funds apply exit load for early redemptions.

Is TDS deducted on SWP withdrawals?

No TDS is deducted on SWP by fund houses.

Is SWP good during a bear market?

It offers stability, but you might redeem more units when NAV is low.

Can I do SWP and SIP in the same fund?

Yes, you can invest and withdraw systematically in the same scheme.

Is SWP suitable for tax saving?

It’s not a tax-saving tool but may offer better post-tax benefits.

Can NRIs use SWP?

Yes, SWP is available to NRIs, subject to FEMA rules.

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