Understanding SWP
SWP stands for Systematic Withdrawal Plan. It allows you to withdraw a fixed amount regularly (typically monthly) from your mutual fund investments while the remaining corpus continues to stay invested and earn returns.
Think of SWP as the reverse of SIP. In SIP, you contribute money monthly to build a corpus. In SWP, you withdraw money monthly from an existing corpus to meet your living expenses.
How SWP Works
You set a withdrawal amount. The fund house sells just enough units at the current NAV to pay you that amount. The rest of your units stay invested.
SWP vs IDCW (Dividend Plan)
SWP (Growth Option)
Best for: Reliable Monthly Income
Fixed amount, guaranteed payout date, better tax efficiency (Capital Gains tax).
Dividend Option
Best for: Occasional Bonus
Uncertain payout (depends on fund profits), inefficient tax (taxed at slab rate), NAV drops after payout.
SWP in Action: Real Example
Retirement Income Strategy
The Math:
- Annual Withdrawal: ₹30,000 × 12 = ₹3,60,000 (7.2% of corpus)
- Annual Return: 10% on ₹50 Lakhs ≈ ₹5,00,000
- Net Result: Returns (₹5L) > Withdrawal (₹3.6L)
- Outcome: Your corpus grows by ₹1.4 Lakhs/year while paying you monthly!
Key Concept: If your Withdrawal Rate is lower than the Return Rate, your capital lasts forever and even grows.
Key Benefits of SWP
Regular Cash Flow
Create your own "pension". You decide the amount and the date of withdrawal to suit your needs.
Tax Efficiency
Unlike FD interest (fully taxable), SWP triggers Capital Gains tax. You pay tax only on the profit portion, which is minimal in early years.
Inflation Protection
By keeping your money in mutual funds (equity/hybrid), your corpus can beat inflation, unlike fixed-return instruments.
Flexibility
Increase, decrease, pause, or stop your withdrawals anytime without penalty.
Common SWP Mistakes
High Withdrawal Rate
Withdrawing more than the portfolio earns (e.g., 12% withdrawal on 8% return) eats into your principal rapidly.
Using Aggressive Equity Funds
Relying on Small Cap funds for SWP is risky. If the market crashes 30%, selling units locks in huge losses.
Plan Your Monthly Income
Use our advanced SWP Calculator to see how long your returns will sustain your withdrawals.