Sushil Bajaj |
📅 Last Updated on: October 4, 2025
In a mutual fund investment, there is what is called SWP (Systematic Withdrawal Plan) that gives investors the option to receive a desired amount directly in bank at regular interval which could be montly, quarterly or annually.
However, how does this help?
For example, if an investor wants to receive regular returns automatically in bank for their day-to-day expenses without touching their original lump sum, or prefers to use the compounded growth of the fund itself to meet ongoing financial needs.”
What is the Systematic Withdrawal Plan, how does it work, and what are it’s benefits, and limitations? Let’s find out insightful information without wasting anymore time.
Consider it this way: In technical merit, an SWP is a type of mutual fund feature to facilitate investor withdrawal of a set amount of money ideally under a certain period of time. Such duration could be quarterly, monthly, or yearly. Furthermore, the investor has the freedom to choose their convenience of how much and how often to withdraw money for their SWP offering.
This methodology is most helpful for individuals seeking to manage income, retirement planning, or benefit from the astounding value of compounding due to the disciplined nature of it.
Scenario 1: Fixed SWP Amount of Rs. 10000/month from 16 lakhs investment
If you invest ₹16,00,000 in a mutual fund and opt for an SWP of ₹10,000 per month, assuming 12% annual returns, your capital not only sustains withdrawals but also grows over time.
Time Horizon: 10 Years (120 Months)
Monthly Withdrawal: ₹10,000
Annual Return Assumed: 12%
In this option, you withdraw a fixed amount (e.g., ₹10,000) every month irrespective of time. The withdrawals remain constant, while the corpus continues to grow based on market returns
| Period | Fixed SWP Amount | Corpus after SWP ₹10,000 |
|---|---|---|
| 5 Years | ₹10,000 | ₹20.16 Lakh |
| 10 Years | ₹10,000 | ₹27.50 Lakh |
| 15 Years | ₹10,000 | ₹40.43 Lakh |
| 20 Years | ₹10,000 | ₹63.22 Lakh |
| 25 Years | ₹10,000 | ₹1.03 Crore |
Here, your monthly withdrawal amount increases gradually over time (e.g., starting at ₹8000 and rising 5% each year). This helps your income keep pace with inflation while the corpus still grows.
| Period | Increasing SWP Amount | Corpus after Increasing SWP |
|---|---|---|
| 5 Years | ₹10,210 | ₹21.17 Lakh |
| 10 Years | ₹12,884 | ₹28.35 Lakh |
| 15 Years | ₹16,247 | ₹38.51 Lakh |
| 20 Years | ₹20,497 | ₹53.27 Lakh |
| 25 Years | ₹25,682 | ₹75.24 Lakh |
Here we have listed few key features of SWP that define the definition in simplified way:
With the advantages of compounding, and systematic withdrawal of your money, here are some of the key benefits of the SWP (Systematic Withdrawal Plans).
| Type | Short-Term Capital Gains Tax | Long-Term Capital Gains Tax |
| Equity Mutual Funds | 20% | 12.5% tax after 1.25 Lac ecemption limit |
| Balanced Mutual Funds | 20% | 12.5% tax after 1.25 Lac ecemption limit |
| Debt Mutual Funds | As per tax slab | 20% after Indexation |
Rupee Cost-Averaging: For investors who focus on withdrawing a specific amount, SWP can help in averaging out the impact of market fluctuations. To gain good profit, it is super important to redeem units during the uptrend of the market. Markets do not always remain in an upward or downward trend, hence if you redeem your units during the good market time, it can potentially minimise the risk of selling during the market downturns.
Convenience: SWP sets the fixed amount of redemption within a fixed period of time, automating the complete process, making it easy for investors to receive regular payout without any fuss.
Let’s study few limitations of Systematic Withdrawal Plans (SWP) consists of:
Market Risk: Aforesaid during the rupee averaging, during the selling of units for withdrawals, SWP is exposed to market risks. If the investors square off and place withdrawals during the downturn, it can cause loss in the investment.
Timing Risk: The timing is vital when considering SWP. If the redemption is opted out when the market is down, it can lock in losses. After all, if it’s not profitable, it is a loss-loss deal.
Tax Implications: Although if the market is up during the time of SWP withdrawal, investors can reap several benefits. However, as per the nature of investment and holding period, withdrawals may attract capital gains tax that can cause loss in overall net returns.
Inflation Risk: If, in case, the withdrawal amount does not keep up with the inflation, the withdrawal amount may lose its value over time.
Fund Selection Risk: Selecting the right mutual fund for Systematic Withdrawal Planning is super important. Investing in a fund with low returns or high expenses can affect the success of the SWP strategy.
Here let’s make a comparison between both benefits and limitations of SWP in simplified way:
| Factors | Benefits of SWP | Limitations of SWP |
| Market Risk | Provides regular income | Exposure to market fluctuations can impact corpus |
| Timing Risk | Allows flexibility in withdrawals | Poor timing of withdrawals can lock in losses |
| Impact on Returns | Enables customization of withdrawal frequency and amount | Regular withdrawals may reduce overall returns |
| Tax Implications | Tax-efficient compared to other income sources | Withdrawals may attract capital gains tax |
| Inflation Risk | Offers potential for inflation-adjusted income | Failure to adjust withdrawal amount for inflation can erode purchasing power |
| Fund Selection | Can be used to manage cash flow efficiently | Choosing the wrong fund can impact returns and effectiveness of SWP |
Systematic Withdrawal Plan, also abbreviated as SWP, is a feature offered by mutual funds that helps investors reap their interests on their invested amount via offering a choice of withdrawing specific amounts. Investors can easily select the time, frequency, and amount of withdrawal as per their needs, keeping it as a secondary source of income.
Here we have listed step-by-step guide on how SW mutual fund works:
The mutual fund will keep selling some of your investment units regularly to give you the money you want, until you stop the withdrawals or you run out of money in your investment.
Systematic Withdrawal Plan or SWP is a very handy and useful tool for mutual term investment, especially if you’re looking for a constant income source or strong source of compounding. Whether you are an experienced investor or amateur trader, investing in SWP is like keeping a retirement plan, useful when you have nothing in hand. Majorly there are no risks associated per se with SWPs, however with the underlying fund, there are few risks included.
Disclaimer:- Mutual Fund investments are subject to market risks, please read scheme related documents carefully before investing.
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