What Is SWP in Mutual Funds?

Mutual funds are like modern-day “dabbas” for your money, where experts manage it, invest it, and ideally grow it over time. But what if you want to withdraw a fixed amount of money regularly from this dabba? That’s where SWP (Systematic Withdrawal Plan) comes in.

Now, imagine your mutual fund is a fridge full of mangoes (investments). Instead of taking out all the mangoes at once (redeeming your full investment), you take out one mango every week. That’s SWP.

What is an SWP in Mutual Funds?

SWP stands for Systematic Withdrawal Plan. It is a facility that allows you to withdraw a fixed amount of money regularly (monthly, quarterly, etc.) from your mutual fund investment.

For example, suppose you invested ₹10 lakhs in the HDFC Balanced Advantage Fund. You decide to withdraw ₹10,000 every month. This ₹10,000 is given to you by selling a few units of your investment each month. So even if the market moves up or down, your withdrawal continues like a fixed "salary".

Let’s take a real-life based example:

Let’s say Mr. Mehta, 60 years old, retired from a PSU job in 2025.
He received ₹30 lakhs in retirement benefits.
Instead of putting it all in a bank FD (which gives 7% interest), he invests ₹30 lakhs in ICICI Prudential Equity & Debt Fund and opts for an SWP of ₹25,000 per month.

Here’s what happens:

Month	Opening Value	Amount Withdrawn	Market Movement	Closing Value
March 2025	₹30,00,000	₹25,000	+2%	₹30,35,000
April 2025	₹30,35,000	₹25,000	-1%	₹29,84,650
May 2025	₹29,84,650	₹25,000	+3%	₹30,39,190

This way, Mr. Mehta gets a monthly income, and his capital keeps growing or staying stable depending on market performance.

Key Feature of SWP in Mutual Funds

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Here are some key features of SWP in Mutual Funds:

Regular Payouts: You get money at fixed intervals (monthly, quarterly, annually) just like a salary or pension.
Flexible Withdrawal: You choose how much to withdraw and how often. You can increase, decrease, or stop it anytime.
Partial Redemption: Only a portion of your investment is redeemed each time; the rest stays invested and can grow.
Custom Start Date: You decide when to start the SWP. There's no fixed rule, you can begin whenever it suits you.
Multiple Fund Options: SWPs can be set up from equity, debt, or hybrid funds, depending on your risk and income needs.
Tax-Efficient: Only the capital gains portion is taxed, not the full withdrawal amount (more efficient than FDs).
Market-Linked Returns: Your remaining investment continues to earn based on market performance.
Automatic Process: Once set up, it works like autopilot; there is no need to manually redeem units every time.
No Lock-In (Except ELSS): You can exit or modify SWP at any time unless it's in a tax-saving ELSS fund (3-year lock-in).
Wealth Preservation: If withdrawals are less than the fund's growth rate, your capital can stay unchanged or even grow.

Tax Efficiency Through SWP

This is where SWP really exceeds traditional income tools like FDs or pensions.

In Fixed Deposit:

Interest earned is fully taxable.
If in a 30% slab, ₹1 lakh interest = ₹30,000 tax.

In SWP:

Only capital gains are taxed (not the full amount).
Also, tax rates are lower:

Equity Funds: LTCG (>1 year): 10% after ₹1 lakh exemption, STCG (<1 year): 15%
Debt Funds: Now taxed as per slab.

For example, you withdraw ₹10,000. If ₹2,000 is profit, tax applies only on ₹2,000.

Conclusion

In conclusion, SWP (Systematic Withdrawal Plan) lets you withdraw a fixed amount regularly from your mutual fund, like a monthly salary. It’s ideal for retirees or anyone needing a stable income. Your remaining investment continues to grow, making it a smart, flexible, and tax-efficient way to earn from your savings. We hope this blog has been helpful to you.

About the Author

Saniya

I'm a finance content writer with a BBA in FinTech, passionate about simplifying money matters for everyday Indians. I break down complex topics like investments, savings, and digital finance into easy, relatable content. My goal is to help you in a way that’s easy to understand, jargon-free, and actually useful in real life.

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