Plan Your Withdrawals
Your SWP Results
Total Investment
₹5,00,000
Initial corpus amount
Total Withdrawal
₹6,00,000
₹10,000/month for 5.0 years
Final Value
₹5,256
Remaining corpus after 5 years
Note: Returns are calculated monthly and compounded. Actual returns may vary based on market conditions and fund performance.
What is a Systematic Withdrawal Plan (SWP)?
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 mutual fund investments. It's the opposite of a Systematic Investment Plan (SIP), where you invest regularly.
With SWP, you can generate a regular income stream from your accumulated corpus while the remaining amount continues to stay invested and earn returns. This makes it an ideal tool for retirees who need regular income, or anyone looking for financial independence without liquidating their entire investment.
The key benefit of SWP is that your remaining corpus continues to grow based on market performance, potentially extending the life of your investment beyond what you'd get from a simple withdrawal strategy.
How Does SWP Work?
Invest Your Corpus
Start by investing a lump sum amount in a mutual fund scheme of your choice. This forms your corpus for regular withdrawals.
Set Withdrawal Amount
Specify the fixed amount you want to withdraw regularly (monthly/quarterly) and the frequency of withdrawals.
Regular Withdrawals
The specified amount is automatically credited to your bank account at regular intervals as per your instruction.
Corpus Keeps Growing
The remaining amount continues to stay invested and earn returns, potentially growing your corpus even while withdrawing.
Benefits of Systematic Withdrawal Plan
Regular Income Stream
Generate a fixed monthly income from your investments, perfect for retirees, homemakers, or anyone needing regular cash flow without a fixed salary.
Tax Efficiency
SWP is more tax-efficient than bank FD interest. Only capital gains are taxed, not the entire withdrawal amount. Long-term gains get indexation benefits.
Flexibility & Control
Change withdrawal amount, pause withdrawals, or stop anytime. You have complete control over your money unlike fixed annuity plans.
Corpus Growth Potential
Your remaining investment continues to earn market-linked returns, potentially growing your corpus even while you withdraw regularly.
SWP vs Other Income Options
💰 SWP from Mutual Funds
✓ Advantages:
- • Tax-efficient (only gains taxed)
- • Flexible withdrawal amounts
- • Corpus continues to grow
- • Can be paused/stopped anytime
✗ Disadvantages:
- • Returns not guaranteed
- • Market risk involved
- • Corpus may deplete faster in bad markets
🏦 Bank FD Interest
✓ Advantages:
- • Guaranteed returns
- • No market risk
- • Capital protection
- • Easy to understand
✗ Disadvantages:
- • Lower returns (5-7%)
- • Full interest taxable as income
- • Principal remains locked
- • No growth potential
📊 Annuity Plans
✓ Advantages:
- • Guaranteed lifetime income
- • No management needed
- • Fixed regular payout
- • Suitable for risk-averse
✗ Disadvantages:
- • Very low returns (4-6%)
- • No flexibility once started
- • Principal cannot be withdrawn
- • No inflation protection
Smart Tips for Using SWP
Choose the Right Fund
For SWP, balanced/hybrid funds or conservative equity funds work best. They provide steady returns with lower volatility compared to pure equity funds.
Keep Withdrawal Rate Sustainable
A good rule of thumb is to withdraw 4-6% of your corpus annually (0.33-0.5% monthly) to ensure your money lasts 20-25 years.
Time Your Entry Wisely
Start SWP when markets are doing well. Avoid starting during market lows as you'll redeem more units for the same withdrawal amount.
Review and Rebalance
Monitor your SWP performance annually. If corpus is depleting faster than expected, reduce withdrawal amount or shift to safer funds.
Tax Planning Matters
SWP after 1 year qualifies for long-term capital gains with indexation benefits (debt funds) or lower LTCG tax rates (equity funds).
Have an Emergency Buffer
Keep 6-12 months of expenses in liquid funds or savings account separately. Don't rely solely on SWP for emergency needs.
Frequently Asked Questions
1. What is the difference between SWP and dividend plans?
In SWP, you decide the withdrawal amount and frequency - it's guaranteed and regular. Dividend plans pay dividends only when the fund declares them, which is uncertain and irregular. SWP provides predictable cash flow and is more tax-efficient as you're redeeming your own units (capital gains tax) versus receiving dividends (taxed as income).
2. How is SWP taxed?
SWP taxation depends on the fund type and holding period. For equity funds: LTCG (>1 year) is taxed at 10% on gains above ₹1 lakh; STCG at 15%. For debt funds: LTCG (>3 years) gets indexation benefit, taxed at 20%; STCG taxed as per your slab. Only the capital gains portion is taxed, not the entire withdrawal amount, making it very tax-efficient.
3. What is the ideal withdrawal rate for SWP?
Financial experts recommend the "4% rule" - withdraw 4% of your initial corpus annually (0.33% monthly). This ensures your money lasts 25-30 years with moderate growth. Conservative investors can use 3-3.5%, while aggressive investors with higher expected returns can go up to 5-6%. Always factor in inflation and adjust withdrawal amounts periodically.
4. Can I change my SWP amount or stop it?
Yes, SWP offers complete flexibility. You can increase/decrease withdrawal amount, change frequency (monthly to quarterly), pause temporarily, or stop permanently anytime. Simply submit a request to your fund house or AMC. Changes typically take effect from the next withdrawal cycle. This flexibility makes SWP far superior to fixed annuity plans.
5. Which mutual funds are best for SWP?
Balanced/Hybrid funds (60-70% equity, 30-40% debt) are ideal for SWP as they provide stability with growth. Alternatives: Conservative Hybrid Funds (75-90% debt), Equity Savings Funds, or Balanced Advantage Funds. Avoid pure equity funds for SWP due to high volatility. For very conservative investors, short-duration or corporate bond funds work well but with lower returns.
6. What happens if my SWP corpus gets exhausted?
If withdrawals exceed returns consistently, your corpus will eventually deplete. The AMC will continue withdrawals until the balance becomes zero or falls below the withdrawal amount. You'll receive communication when balance is low. To prevent this: reduce withdrawal amount, choose funds with better returns, or top up your corpus periodically.
7. Is SWP safe for retirees?
SWP can be safe for retirees if done correctly. Choose low-volatility funds (balanced/hybrid), keep withdrawal rate conservative (3-4%), maintain emergency funds separately, and diversify across 2-3 fund categories. SWP is safer than relying solely on equity funds but carries more risk than bank FDs. It's best suited for retirees with moderate risk appetite seeking tax-efficient regular income.
8. Should I start SWP immediately after retirement?
Not necessarily. If markets are down during your retirement, wait for recovery before starting SWP. Meanwhile, use liquid funds or FDs for expenses. Starting SWP at market lows means redeeming more units per withdrawal, depleting corpus faster. Ideally, accumulate corpus 1-2 years before retirement and start SWP when NAV is reasonably high.
9. Can I have multiple SWPs from different funds?
Yes, you can set up multiple SWPs across different mutual funds and AMCs. This is actually a good diversification strategy. For example: ₹10,000/month from equity hybrid fund, ₹10,000 from debt fund, ₹5,000 from liquid fund. This diversification reduces risk and provides stability. Each SWP can have different withdrawal amounts and frequencies.
10. How much corpus do I need to start SWP?
There's no fixed minimum, but for effective SWP, you need a substantial corpus. If you need ₹25,000/month, you should have at least ₹50-75 lakhs corpus (using 4-6% annual withdrawal rate). For ₹50,000/month, aim for ₹1-1.5 crore. Smaller corpus means faster depletion. Calculate backward from your monthly needs using the 4% rule to determine required corpus.