Investing in mutual funds is a great way to grow wealth, but what if you need a regular income from your investment? This is where SWP (Systematic Withdrawal Plan) comes in.
SWP allows investors to withdraw a fixed amount from their mutual fund investment every month while the remaining money continues to grow.
In this article, we will explain SWP in very simple words, with examples, benefits, risks, how to start, and frequently asked questions.
1. What is SWP (Systematic Withdrawal Plan) in Mutual Funds?
SWP in mutual funds is a method of withdrawing money at regular intervals (monthly, quarterly, or yearly) from your invested mutual fund. This helps you get a steady cash flow while keeping your remaining investment growing.
How Does SWP Work?
SWP (Systematic Withdrawal Plan) works by allowing you to withdraw a fixed amount from your mutual fund investment at regular intervals while the remaining money stays invested.
You start by investing a lump sum in a mutual fund. Every month, a fixed amount is withdrawn and credited to your bank account.
The remaining amount continues to grow based on the fund’s returns. Over time, this helps generate regular income while keeping your investment growing.
Unlike Fixed Deposits, SWP offers higher returns and tax benefits. You can also increase, decrease, or stop withdrawals anytime, making it a flexible income source.
In-shorts
- You invest a lump sum amount in a mutual fund.
- Every month, you withdraw a fixed amount.
- The remaining amount continues to grow in the market.
- Over time, your money can last longer while providing regular income.
Example of SWP
Imagine you invest ₹10 lakh in a mutual fund with an average return of 12% per year. You decide to withdraw ₹10,000 per month using SWP.
- In the first month, ₹10,000 is withdrawn, and the rest of the money remains invested.
- The remaining amount continues to grow at around 12% per year.
- Even after withdrawing ₹1.2 lakh per year (₹10,000 × 12 months), your remaining investment grows.
This way, you get regular income + wealth growth.
2. Benefits of SWP in Mutual Funds
SWP is a smart way to create passive income from mutual funds. Here are its key benefits:
✅ 1. Regular Income: You get a fixed amount every month, just like a salary.
✅ 2. Wealth Creation Continues: Your remaining money keeps growing, unlike a Fixed Deposit where the amount remains constant.
✅ 3. More Tax-Efficient Than FD: In Fixed Deposits (FD), you pay tax on full interest income. But in SWP, only capital gains are taxed, and long-term capital gains (LTCG) up to ₹1 lakh are tax-free.
✅ 4. Better Than Dividends: Dividends in mutual funds are taxed, but in SWP, you can control your withdrawals and reduce tax liability.
✅ 5. Flexible Withdrawals: You can increase, decrease, or stop SWP anytime.
3. Risks of SWP in Mutual Funds
While SWP is a great option, there are some risks to be aware of:
❌ 1. Market Risk: Since mutual funds depend on the stock market, your remaining investment value may go up or down.
❌ 2. Returns Are Not Fixed: Unlike FD, where you get a fixed interest rate, mutual fund returns can fluctuate.
❌ 3. Capital Depletion Risk: If you withdraw too much every month, your investment may run out sooner than expected.
4. FD vs SWP: Which is Better?
| Feature | SWP in Mutual Fund | Fixed Deposit (FD) |
|---|---|---|
| Returns | 10-12% (expected) | 6-7% (fixed) |
| Income Type | Variable but grows | Fixed payout |
| Wealth Growth | Yes | No |
| Tax Benefits | Lower tax on LTCG | Fully taxable |
| Flexibility | High | Low |
| Risk | Market-linked | No risk |
Conclusion: If you want higher returns and wealth growth, SWP is better. If you need 100% safety, choose FD.
5. Best Mutual Funds for SWP in 2025
Here are some good mutual funds for steady SWP income:
1️⃣ HDFC Balanced Advantage Fund – Suitable for long-term withdrawals.
2️⃣ ICICI Prudential Equity & Debt Fund – Balanced and stable returns.
3️⃣ Mirae Asset Hybrid Equity Fund – Offers growth with lower risk.
4️⃣ SBI Equity Hybrid Fund – Good for conservative investors.
Always check the fund’s past performance and consult a financial advisor before investing.
6. How to Start SWP in Mutual Funds?
Starting an SWP is very easy. Follow these steps:
Step 1: Choose a Mutual Fund
Pick a good mutual fund based on risk, return, and investment goal.
Step 2: Invest a Lump Sum Amount
SWP works best when you invest a large amount (e.g., ₹5 lakh or ₹10 lakh).
Step 3: Decide the Withdrawal Amount
Select how much you want to withdraw monthly or quarterly.
Step 4: Submit SWP Request
Apply for SWP through your mutual fund provider (online or offline).
Step 5: Start Receiving Money
Once set up, you will start getting regular income from your mutual fund.
7. Frequently Asked Questions (FAQs)
Q1. How much should I invest in SWP?
It depends on your income needs. If you want ₹10,000 per month, investing ₹10-15 lakh is ideal.
Q2. Is SWP better than FD?
Yes, for long-term wealth creation, SWP is better. But FD is safer.
Q3. Can I change or stop SWP?
Yes, you can modify or stop SWP anytime.
Q4. Is SWP taxable?
Yes, but it is more tax-efficient than FD. Long-term capital gains (LTCG) up to ₹1 lakh per year are tax-free.
Q5. Can I use SWP for retirement income?
Yes, SWP is a great retirement option as it provides steady income + growth.
Final Conclusion
SWP is a great way to generate passive income while growing your wealth. It is more tax-efficient than FD and allows flexibility. If you want higher returns with regular income, SWP in mutual funds is an excellent choice.
