What is SWP in Mutual Funds? A Smart Way to Earn Monthly Income

Mutual funds provide a variety of instruments for smart investing to meet various financial objectives. The Systematic Withdrawal Plan (SWP) is one such strategy that is becoming more and more well-liked by investors looking for a consistent income stream. This blog will explain what SWP in mutual funds means and how it can help you get regular income.

What is SWP in Mutual Fund?

SWP, which means Systematic Withdrawal Plan, allows investors to take out a fixed amount of money from their mutual fund at regular times—like every month, every three months, or once a year. Unlike a lump sum withdrawal, SWP offers structured and disciplined fund withdrawals, making it perfect for generating a monthly income.

If you are a retiree looking for a reliable income stream or a salaried person seeking additional cash flow, SWP in mutual funds can work as a dependable financial strategy.

How Does SWP Work?

1. You put a large amount of money at once into a mutual fund plan.
2. You choose the SWP option and decide how much money you want to withdraw and how often.
3. On each scheduled date, the mutual fund house sells the required number of units to provide you with the requested withdrawal amount.
4. The remaining units continue to stay invested and grow as per the fund’s performance.

Example:

Imagine you invest ₹10,00,000 in a mutual fund and take out ₹10,000 every month using an SWP (Systematic Withdrawal Plan). If your fund grows at 10% annually, your principal decreases slowly, while you continue receiving monthly payouts.

Key Benefits of using SWP in Mutual Fund

1. Regular Income

The primary benefit of SWP is that it provides a steady source of income, especially useful for retirees and homemakers or anyone who requires regular funds.

2. Customizable Withdrawals

You can customize your withdrawal amount and frequency based on your financial needs.

3. Capital Appreciation

Even while you are withdrawing funds, the remaining investment continues to earn returns, helping your capital grow or remain stable.

4. Tax Efficiency

SWP saves more tax than regular fixed income options, especially if you invest for a long time.

5. Rupee Cost Averaging (In Reverse)

Just as SIP benefits from rupee cost averaging while buying, SWP benefits while selling, especially in volatile markets.

Who Should Opt for SWP?

• Retirees needing monthly income
• Individuals with a large corpus seeking partial liquidity
• Housewives or students who want periodic cash flow from family investments
• Investors seeking passive income
• People looking for an alternative to fixed deposits or rental income

Types of SWP in Mutual Funds

1. Fixed Amount SWP: Withdraw a fixed amount every month.
2. Appreciation SWP: Only withdraw the profit (appreciated value) while preserving the capital.
3. Custom SWP: Flexibility to change withdrawal amount or frequency anytime.

SWP vs SIP: What’s the Difference?

Tax Implications of SWP in Mutual Funds

Unlike regular income which is fully taxable, SWP withdrawals are taxed based on capital gains.

• Equity Mutual Funds:
  • Short-term (less than 12 months): 15%
  • If you hold your investment for more than 12 months, you will pay 10% tax on the profit. But, the first ₹1 lakh of profit is not taxed
• Debt Mutual Funds (post-April 2023 update):
  • Entire gain taxed as per investor’s slab rate (if held less than 3 years)

Best Mutual Fund Categories for SWP

• Balanced Advantage Funds
• Arbitrage Funds (for low risk, short-term SWP)
• Large Cap Funds (for long-term SWP)
• Debt Mutual Funds (for conservative investors)

How to Start a SWP in a Mutual Fund?

1. Choose a mutual fund and invest a lump sum.
2. Select the SWP option in the application form or online platform.
3. Decide the frequency (monthly/quarterly) and amount to withdraw.
4. Submit the request and start receiving income.43

FAQs on SWP in Mutual Funds

Q1. What is SWP in mutual funds?

Ans:SWP (Systematic Withdrawal Plan) is a feature in mutual funds that allows investors to withdraw a fixed amount of money at regular intervals, such as every month.

Q2. Is SWP good for monthly income?

Ans: Yes, SWP is a good option for people who want a fixed monthly income. It is especially helpful for retired people or those who have invested a large amount of money.

Q3. What is the minimum investment for starting SWP?

Ans: Most AMCs allow SWP with a minimum investment of ₹25,000 to ₹50,000. The monthly withdrawal can start as low as ₹500 or ₹1,000.

Q4. Is SWP tax-free?

Ans: No, SWP is not completely tax-free. Tax is levied on the capital gains portion of the withdrawn amount, depending on the fund type and holding period.

Q5. Can I stop or change my SWP anytime?

Ans: Yes, SWP is highly flexible. You can modify or cancel the plan at any time without penalties.

Q6. Which mutual fund is best for SWP?

Ans: Funds with low volatility and stable returns like balanced advantage and debt or large cap funds are preferred for SWP.

Q7. Does SWP affect my investment growth?

Ans: Yes. Since units are being sold, your investment corpus may reduce over time. However, if returns exceed withdrawals, your corpus may remain stable.

Conclusion

If you are planning your retirement or just want a monthly payout from your mutual fund, then SWP is a brilliant option. It offers flexibility or tax efficiency and financial discipline. By understanding what is SWP in mutual fund, you’re already on the path to smarter financial planning.

Start small or monitor regularly and choose the right fund for your needs. SWP can help you enjoy life while your money works for you.

Nishika Kandari

I am a digital marketing executive as well as content writer in the mutual funds related blogs. My goal is to provide simple, interesting and reliable information to readers through my articles so that they always stay updated with the world of mutual funds.

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