SWP (Systematic Withdrawal Plan)

How it works

A Systematic Withdrawal Plan is the opposite of a SIP: instead of investing a fixed sum regularly, you *withdraw* a fixed sum at set intervals (usually monthly) from a mutual fund. On each withdrawal date, the fund redeems just enough units to pay you the chosen amount, and the rest of your money stays invested and continues to grow. It turns a lump-sum corpus into a regular income stream.

Why it matters

SWP is hugely popular for retirement income and for anyone wanting a predictable monthly payout from investments. Compared to a dividend option, it gives you control over exactly how much you receive and when. As long as the fund's growth roughly keeps pace with your withdrawal rate, the corpus can last for decades while still paying you.

Tax advantage in India

SWP is tax-efficient because each withdrawal is treated as a partial redemption, so only the *gains portion* of each payout is taxed — not the whole amount. In an equity fund held over a year, withdrawals fall under long-term capital gains, where the first ₹1.25 lakh of LTCG each year is exempt. This is often more efficient than fully taxable interest income from an FD.

Common mistakes

The biggest risk is withdrawing faster than the fund grows, which steadily depletes the corpus — especially dangerous if you start an SWP from an equity fund right before a market crash (sequence-of-returns risk). A sensible rule of thumb is to keep the annual withdrawal rate conservative (many advisers suggest staying well within the fund's expected long-term return). Choose the fund type to match your risk tolerance (many retirees keep the SWP corpus in conservative hybrid or balanced funds rather than pure equity), keep the withdrawal rate sustainable, hold a year or two of withdrawals in low-risk assets as a buffer against bad markets, and review the plan periodically as markets, inflation and your needs change.