Systematic Withdrawal Plan (SWP) in Mutual Funds – Strategies & Benefits
Many investors want a steady income from their investments without draining their funds. A Systematic Withdrawal Plan (SWP) helps achieve this. It allows investors to withdraw a fixed amount at regular intervals from their mutual funds, while keeping the remaining investment active. In this blog, we will explore how SWPs work, their benefits, the best mutual funds for SWP, how to invest, and more.
What is SWP in Mutual Fund?
A Systematic Withdrawal Plan (SWP) is an investment strategy that allows investors to withdraw a fixed amount from their mutual fund investment at regular intervals. It is the reverse of a Systematic Investment Plan (SIP), where you invest money regularly. While in SWP, you withdraw money regularly to meet specific financial goals, such as covering living expenses, funding education, or retirement.
Here are some key features of a Systematic Withdrawal Plan (SWP):
- Mutual fund withdrawal plans offer a regular income for investors.
- It allows investors to withdraw a fixed amount from their investment at set intervals.
- Investors can choose the withdrawal amount, frequency, and duration based on their financial needs.
- SWP promotes a disciplined approach, helping investors avoid depleting their investments too quickly.
How Does a Systematic Withdrawal Plan Work?
Let’s understand how a systematic withdrawal plan works with an example.
If you’ve invested ₹1,00,000 in a mutual fund and want to withdraw ₹5,000 every month, you can set up an SWP. The mutual fund’s Net Asset Value (NAV) is ₹20 per unit. Here’s how to calculate the process of a regular withdrawal plan:
1. Calculate the Number of Units to Redeem
To withdraw ₹ 5,000, the mutual fund calculates how many units need to be redeemed. The formula is:
Number of Units to Redeem = Withdrawal Amount / NAV
Number of Units to Redeem = ₹5,000 / ₹20 = 250 units
2. Redemption Process
At the beginning of each month, the mutual fund will redeem 250 units from your holdings and credit ₹ 5,000 to your bank account.
3. Adjusted NAV
After redemption, the NAV may change. Let’s say the NAV increases to ₹ 22.
4. Calculate the New Number of Units
For the next month’s withdrawal, use the updated NAV to calculate how many units need to be redeemed:
Number of Units to Redeem = Withdrawal Amount / NAV
Number of Units to Redeem = ₹ 5,000 / ₹ 22 = 227.27 units (rounded to the nearest whole unit)
5. Redemption Process (Next Month)
In the second month, the mutual fund will redeem 227 units from your holdings at the updated NAV and credit ₹5,000 to your bank account. This process will continue every month until you choose to stop your withdrawals.
| Steps | Details |
|---|---|
| Initial Investment | ₹1,00,000 |
| Monthly Withdrawal Amount | ₹5,000 |
| Mutual Fund’s NAV | ₹20 per unit |
| Number of Units to Redeem (Month 1) | Withdrawal Amount / NAV = ₹5,000 / ₹20 = 250 units |
| Redemption Process (Month 1) | At the start of the month, the mutual fund will redeem 250 units and credit ₹ 5,000 to the investor’s bank account. |
| Adjusted NAV (After Month 1) | ₹22 per unit (example) |
| New Number of Units (Month 2) | Withdrawal Amount / NAV = Rs. 5,000 / ₹22 ≈ 227.27 units (rounded to nearest whole unit) |
| Redemption Process (Month 2) | At the start of the second month, the mutual fund will redeem approximately 227 units (rounded) at the updated NAV and credit ₹5,000 to the bank account. |
How to Start an SWP in Mutual Funds?
If you’re wondering how to start a Systematic Withdrawal Plan (SWP) in mutual funds, here’s a simple guide.
- Choose the Right Fund: Start by selecting a mutual fund that aligns with your goals, risk tolerance, and investment timeline. Options include equity, debt, and hybrid funds.
- Submit the SWP Form: To initiate a systematic withdrawal plan, you’ll need to submit an SWP form (also called a distribution form) to your mutual fund provider. This form lets you select your desired withdrawal schedule (monthly, quarterly, or annually).
- Set Withdrawal Amount: Decide on the fixed amount you’d like to withdraw at each interval. The amount will be transferred automatically to your designated bank account on the scheduled dates.
Best SWP in Mutual Funds in India 2025 (Based on 3Y CAGR)
| Name | AUM | CAGR 3Y | Expense Ratio |
| SBI PSU Fund | 5,427.44cr. | 35.1 | 0.85 |
| Bandhan Small Cap Fund | 12,981.57 | 33.74 | 0.39 |
| Aditya Birla SL PSU Equity Fund | 5,687.15 | 32.93 | 0.53 |
| Franklin India Opportunities Fund | 7,199.55 | 32.84 | 0.49 |
| Nippon India Power & Infra Fund | 7,619.74 | 32.51 | 0.94 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
Note: The list of top mutual funds for SWP is from 30th September 2024, and the data is derived from Tickertape Mutual Fund Screener.
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Overview of the Top 5 SWP Mutual Funds (Based on 3-Yr CAGR)
SBI PSU Fund
The SBI PSU Fund invests in public sector companies, mainly in energy, utilities, and infrastructure. It aims to provide long-term growth by investing in companies with potential in India’s public sector.
Bandhan Small Cap Fund
The Bandhan Small Cap Fund focuses on small-cap stocks with high growth potential. It seeks long-term capital appreciation by investing in emerging companies across various sectors.
Aditya Birla SL PSU Equity Fund
The Aditya Birla SL PSU Equity Fund invests in public sector companies, particularly in energy, banking, and infrastructure. It focuses on stocks related to India’s public sector.
Franklin India Opportunities Fund
The Franklin India Opportunities Fund invests in a range of companies, from large to small-cap stocks. It seeks capital appreciation by focusing on sectors with strong growth potential and solid fundamentals.
Nippon India Power & Infra Fund
The Nippon India Power & Infra Fund invests in the power and infrastructure sectors. It aims to grow capital by investing in industries like energy and utilities, which are essential for India’s growth.
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Who Can Benefit from SWP in Mutual Funds?
SWPs can be ideal for investors seeking a regular income stream. While Income Distribution Cum Capital Withdrawal (IDCW) plans also provide periodic payouts, they depend on the fund house’s discretion, making them less reliable than SWPs. SWPs in mutual funds may also be suitable for those who want a disciplined approach to withdrawing money, ensuring they don’t overspend or withdraw too much, and maintain financial control.
Benefits of a Systematic Withdrawal Plan
Tax Benefits
- Capital Gains Tax: SWPs allow you to control the timing and amount of withdrawals, potentially spreading them over multiple years. This can help stay within lower tax brackets and reduce tax impact. However, the tax rate depends on whether the gains are short-term or long-term
Rupee Cost Averaging
- Reduced Market Timing Risk: By withdrawing a fixed amount regularly, you reduce the risk of market timing. It helps to average out the cost of your investment over time.
- Risk Mitigation: Regular withdrawals help avoid selling large portions of your investment during market downturns, potentially protecting your portfolio from significant losses. However, it’s important to be cautious with this strateg
Effective Ways of Using a Systematic Withdrawal Plan
Here are some effective strategies for using a SWP:
- Establish a Steady Secondary Income Stream: With the rising cost of living, having an additional income source is important. By investing in mutual funds and using SWP, you can create a steady income stream.
- Build Your Own Retirement Fund: If you don’t have a pension plan, you can build your retirement corpus by investing in mutual funds based on your risk tolerance. Once you retire, an SWP can help you generate a reliable income.
- Preserve Capital: Instead of withdrawing your entire investment at once, an SWP allows you to take out funds gradually. This ensures that most of your investment stays in the market and continues to grow.
Difference Between SIP and SWP
SIP (Systematic Investment Plan) and SWP (Systematic Withdrawal Plan) are two strategies used in mutual fund investments. Here’s a clear comparison:
| Basis | Systematic Investment Plan (SIP) | Systematic Withdrawal Plan (SWP) |
|---|---|---|
| Definition | SIP is a method of investing a fixed amount regularly in a mutual fund. | SWP is a method of withdrawing a fixed amount regularly from a mutual fund. |
| Purpose | To create wealth over time with disciplined investing. | To provide a regular income stream. |
| Investment | A fixed amount is invested regularly (monthly, quarterly, etc.). | A fixed amount is withdrawn regularly (monthly, quarterly, etc.). |
| Tax | Tax is applicable when mutual fund units are redeemed. | Tax on SWP withdrawals is calculated only on the capital gains of each SWP instalment. |
| Suitability | Ideal for long-term wealth creation, particularly for disciplined investors. | Suitable for retirees and individuals seeking a regular income. |
Taxation on SWP
SWP is affected by the tax on mutual fund withdrawals. Below, we have mentioned the tax rates for SWP withdrawals based on fund type and holding period:
| Fund Type | Holding Period | Tax Category | Tax Rate |
| Equity/Equity-Oriented Funds | Less than 12 months | Short-Term Capital Gains (STCG) | 20% (plus applicable surcharge and cess) |
| Equity/Equity-Oriented Funds | More than 12 months | Long-Term Capital Gains (LTCG) | 12.5% on gains exceeding ₹1.25 lakh annually (plus surcharge and cess) |
| Debt/Non-Equity Funds | Any duration (post-July 2024) | Capital Gains | Taxed at the investor’s income tax slab rate (no indexation) |
| Hybrid Funds | Depends on equity exposure | Varies | f >65% equity, taxed as equity funds; if <65% equity, taxed as debt funds |
Factors to Consider Before Investing in SWP in Mutual Funds
Financial Goals
It’s important to know your financial goals when choosing a systematic withdrawal plan. Whether you need a regular income or funds for a specific purpose, understanding your objective will help you pick the right SWP funds.
Market Conditions
Market conditions, such as economic shifts or changes in investor sentiment, can affect the returns of a systematic withdrawal plan. So it’s important to understand how broader market trends may impact your investment.
Exit Load and Expenses
Funds with lower costs help you retain more of your returns, so when exploring the systematic withdrawal plan, consider the exit load and expense ratio of the mutual funds. However, it shouldn’t be the sole criterion for choosing a fund; other factors like performance and alignment with your goals are equally important.
Tax Implications
Capital gains tax and other taxes may reduce your returns, so make sure you are fully aware of the tax implications when using an SWP and come up with a plan accordingly.
To Wrap It Up…
A Systematic Withdrawal Plan (SWP) helps you create a steady income by withdrawing fixed amounts from your investments. It allows you to access your funds regularly while keeping your investments growing. However, it’s important to align your SWP investment strategy with your goals and/or consult a financial advisor before investing.
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Frequently Asked Questions About SWP
A systematic withdrawal plan is an investment strategy that allows the investor to withdraw a fixed amount of money from their mutual fund holdings at a predetermined interval.
Fixed Deposits (FDs) may provide stability and fixed returns, while SWP potentially offers flexibility, allowing adjustments to withdrawals as needed. Therefore, it is crucial to evaluate your specific needs to determine which option is better for your investment strategy.
Investors who need a regular income stream from their mutual fund investments, such as retirees, pre-retirees, and those with other financial obligations, can consider investing in the best mutual fund for SWP. Additionally, investors with high tax brackets and those seeking capital protection can find SWP a suitable option.
In an SWP plan, investors have the flexibility to choose the amount, frequency, and withdrawal date. Therefore, investors can stop the SWP at any time or add further investments.
A Systematic Withdrawal Plan(SWP) is the opposite of a Systematic Investment Plan (SIP). With a SIP, you invest money at regular intervals, while with a SWP, you withdraw a fixed amount at regular intervals. Both serve different purposes and largely depend on what you want to do.
SWP can be an ideal solution for retirees. It provides a reliable income by turning retirement savings into regular withdrawals. By selecting the right mutual funds, retirees can structure their withdrawals to suit their needs, similar to a personalised pension plan.
