What’s in the blog?
This blog explains what SWPs are, how they work, and how they help you turn your mutual fund investments into regular income. This is especially useful for retirees, entrepreneurs, or anyone who wants cash flow without breaking their corpus.
Table of Contents
Today, people are much more aware about savings and investments than they were just 5–10 years ago. Mutual funds have become a household name, and terms like SIP (Systematic Investment Plan) are now commonly understood and even discussed at dinner tables.
But when it comes to Systematic Withdrawal Plans (SWPs), not many people are aware.
People invest in mutual funds for growth but if they need regular income they would still look towards FDs and traditional pension plans. Through this blog, I want to introduce you to SWP, a simple but powerful way to get steady income from your mutual fund investments.
What is an SWP?
Before we dig any deeper, it’s important to understand the basics. So, what does SWP exactly mean?
SWP stands for Systematic Withdrawal Plan that you can understand as a monthly salary being drawn from your mutual fund investment. In SIP, you invest a fixed sum of money every month or quarter in a mutual fund. In SWP you take back your money at such regular intervals. While you withdraw your money, the rest of your corpus keeps growing in the market.
You can see SWP as your pocket money from your past investments. Whether you’re retired, taking a break from work, or simply want steady passive income, SWPs can help you live off your investments without running out of money too soon.
Benefits of Systematic Withdrawal Plan
Let us see what are the features of SWP that make professionals like me recommend it over the traditional FDs or pension plans.
- Steady Regular Income – Whether you’re a retiree, a freelancer, or taking a break from work, SWPs can give you a fixed income every month—without the hassle of breaking FDs or withdrawing lump sums or liquidating your investments every time.
- Tax-Friendly Withdrawals – SWPs give you better control over taxation. For example, long-term capital gains on equity mutual funds are taxed at just 10% above ₹1 lakh, much lower than the tax you’d pay interest from FDs.
- Your Money Keeps Growing – Even while you withdraw regularly, the remaining money stays invested. That means your wealth keeps growing, unlike FDs where the growth stops once you start withdrawing.
- Full Flexibility – You decide how much to withdraw and how often—monthly, quarterly, or however it suits you. You can also change or pause withdrawals at any time depending on market conditions or life requirements.
- Builds Financial Discipline – Having a fixed withdrawal strategy prevents emotional or impulsive decisions. It brings structure to your finances—especially useful during retirement or uncertain phases.
How to Set Up SWP Effectively
Now, you know what SWP is and how beneficial it is for regular income generated from your investments. Now, it’s time to learn how to utilize this tool appropriately and effectively.
Setting up an SWP is not about picking a number and scheduling monthly withdrawals. Lots of smart strategy goes into planning this. A smart SWP is designed to last for years, maybe even decades—without putting too much pressure on your investment.
Let me walk you through some practical tips to help you do it right:
Calculate Your Withdrawal Amount Carefully
The calculation begins with your understanding of how much money you really need every month. As a rule of thumb we recommend capping the withdrawal to 4-5% of your total corpus annually. This helps ensure that your money lasts longer and continues to grow.
For example, if your total investment is ₹20 lakhs, withdrawing ₹8,000 per month (₹96,000 a year, i.e., 4.8%) is a sustainable plan. Even if the return per annum is 8% and you withdraw money for 30 years you will have 88,56,909 corpus left after 30 years. Suppose someone with the same corpus withdraws 25,000 per month, their corpus won’t last even for 10 years.
Diversify Wisely
Diversification is very important not only when you are building a corpus but also when you start systematically withdrawing from it. When you are depending on your corpus for regular income, you should never put the entire of it in equity mutual funds.
A balanced mix of equity, hybrid and debt funds can give you growth and stability at the same time. Debt funds or hybrid funds are often better suited for SWP because they’re less volatile and offer more predictable returns.
Monitor Your Fund Performance
Typically we talk about ‘set and forget’ strategy while investing in mutual funds but this isn’t appropriate once your SWP is active. It is important to keep an eye on how your mutual funds are performing.
If the returns of your funds drop and you see it is no longer sustainable for your monthly payouts, you might need to switch to a better fund or reduce your withdrawal amount. Here you may need help from a trusted advisor to help you calculate the appropriate strategy. SWP needs basic tracking.
Make it a Habit to Review Annually
It’s not only the performance of your fund that changes. Your lifestyle and needs also evolve over time. It is important to do a holistic review annually. You might have over or under estimated your monthly requirements. The market might go in a volatile or a bullish or bearish phase. All these variables make it important to do an annual review.
Based on all the changing factors you might need to switch to a more conservative fund or increase or decrease your withdrawal.
Understand Tax Implications
Withdrawals from mutual funds are not tax-free but the tax treatment depends on how long you’ve held the units. If sold within 1 year (in equity funds), its Short-Term Capital Gains (STCG). If held longer, it’s Long-Term Capital Gains (LTCG), which is taxed at just 10% above ₹1 lakh of gains in a year.
Planning your SWP with the tax implication in mind can help you save a lot in taxes over time. And, if you are not planning wisely you might have to lose a part of your corpus in taxes.
My Take
Building wealth doesn’t mean just accumulating a big corpus; it means designing a life that feels secure and free of financial stress. If you are consistent with your investments, you must know how to systematically withdraw it at the time when you need it without locking your funds in low returning tools like FDs.
If you are planning for retirement, a sabbatical or just want to explore income withdrawal strategies, team MoneyAnna is here to help.
Frequently asked questions (FAQ)
Yes. After investing via SIP and completing the required holding period (like 1 year for equity funds), you can start SWP from the same fund. Since each SIP installment has its own date, tax is calculated based on how long each unit is held. You can plan tax-efficient withdrawals.
SIP is for building a corpus, while SWP is for withdrawing from it regularly. Ideally, you use SIP during your earning years to grow your corpus, and switch to SWP when you need income from that corpus.
Withdrawing 2 lakhs/month equals 24 lakhs per year i.e. about 12% withdrawal rate. It’s quite aggressive and may not be sustainable in the long run. A safer withdrawal rate is around 4–6% per year. Consider lowering your withdrawal or combining with other income sources.
SIP (Systematic Investment Plan) puts money into a fund regularly. SWP (Systematic Withdrawal Plan) pulls money out of a fund regularly. One builds your investment, the other gives you regular income.
Annuities give guaranteed income but offer lower returns and less flexibility. SWPs offer potentially higher income, flexibility, and growth but market risks apply. SWPs can be better if you want control and are okay with some risk. Moreover you also have control over risk exposure in SWP through various combinations of funds.
There’s no fixed tenure as such. You may choose to build your corpus gradually through Systematic Investment Plan (SIP) or put in Lumpsum amount. Typically people invest through SIP for 10-15 years during their earning years and then start SWP in their retirement years.
