Last Updated on May 24, 2022 by Anjali Chourasiya

A Systematic Withdrawal Plan (SWP) can be termed as the opposite of a Systematic Investment Plan (SIP), where instead of investing your money smartly, you withdraw the same systematically. The main objective of SWP is to create a steady income substitute through the debt and money market. Let’s dive deeper to know more about it.

What is SWP in mutual funds?

In a Systematic Withdrawal Plan (SWP), you redeem your mutual fund units in a systematic manner after a certain time with a profit. Here, you can withdraw the money at your own pace quarterly, monthly or yearly. These mutual funds are low-risk funds but give considerable profit, as the withdrawal is based on the net asset value (NAV) of the market on that particular day.

Both SIP and SWP are for investors who want fixed income with lower risk and good returns. In SIP, there is no lump sum investment but rather small investments over a period of time, while in SWP, the investment is a lump sum and the withdrawal is made in small quantities over a period of time.

There are several benefits of doing an SWP

  • Investment in SWP provides tax benefits as it is the combination of both capital and income, where the tax is only applicable to the income component and not the capital component.
  • Investment in SWP allows you systematic fixed income, which is helpful after retirement.
  • SWP allows you to curb impulsive withdrawals, which are subjected to panic or fear when the market crashes or on emergency terms.

There are two types of withdrawal in SWP

  • Fixed Withdrawal plan where, when you redeem the units, you will get returns in your bank account.
  • Appreciation Withdrawal in which only the actual investment value is transferred to the account.

You may be wondering how an SWP works. The steps involved in the process are as follows:

  • You can register for SWP in mutual funds with the estimated amount of withdrawal and frequency of the withdrawal.
  • The standing instruction is registered with the mutual fund, which will then automatically redeem the units and deposit the same in the bank account registered at regular intervals.
  • The balance units after the withdrawal will become the value of the mutual fund.

Calculating the return via SWP

An investor needs to get a basic idea of the amount of investment, return values, tax deductions, interest or any other penalty charges and other things to ascertain the correct SWP. There are many ways to do that, but the easiest is the SWP calculator, which is available online. The SWP calculator considers many elements such as age, salary, your desired expectations, current savings and other elements for calculation.

For systematic withdrawals to commence, most accounts have a minimum balance requirement. For accounts with various assets, you may be able to designate liquidation percentages by funds for convenience. This can take place with mutual fund company assets, brokerage accounts, or financial advisor-managed portfolios.

Why is SWP a good option?

Mutual funds are subjected to market risk, and the government has recently decided to tax the dividends paid by these mutual funds. With the risk factor and the taxing of dividends, if you are choosing to opt for SWP as the returns are not fully taxed, and the risk factor is generally very low.

Many investors have started investing in SWPs in aggressive hybrid schemes due to the presumption that the fund will be less volatile than pure equity schemes. However, most of these investors discovered during the recent downturn that their corpus had shrunk dramatically as a result of regular withdrawals and adverse market conditions. When configuring an SWP, keep this in mind.

You should also be cautious about how much you intend to withdraw from your investment each month. If you do not want to lose the capital, withdraw less than the scheme’s returns.

For example, if you expect a 7% return from the scheme, you should withdraw only 5% or 6% of your investment. In this case, it would be better to seek expert advice. In addition to preparing for and initiating a systematic withdrawal plan, you may want to think about taxes and possibly a systematic transfer plan. A tax advisor can assist you in determining the tax rate on withdrawals from both standard and retirement accounts. Because withdrawals from standard accounts necessitate the sale of securities, they are typically taxed as income.


SWP is generally a good investment option for those who are seeking returns after retirement or who like safe investments. Investing in SWP in mutual funds is an excellent way to create a consistent source of side income. Inevitably, you can start an SWP and earn average returns without risking your capital. A systematic withdrawal plan is used to reclaim your invested funds from a mutual reserve program on a regular basis. Unlike lump-sum withdrawals, it allows you to withdraw funds in instalments. You can also choose to withdraw only the capital gains from your venture or a fixed sum.

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