SWP full form is a Systematic Withdrawal Plan in mutual fund. Systematic Withdrawal Plan is a facility in a mutual fund house to take a fixed amount of withdrawal from a mutual fund investment.

Last updated on 23 May 2024. Before updated on 30 Jan 2023.

What is SWP in Mutual Funds?

 SWP full form is a Systematic Withdrawal Plan. It is a convenient way to take monthly income from your deposited money.

SWP in mutual fund is a facility (option) to withdraw ( take income) your money in a systematic manner (Frequency and withdrawal duration chosen by the investor ).

How does SWP Work? – with Example

Ok, Let’s understand it with SWP example of Mr. Bestii.

Suppose Mr. Bestii has 15 lakhs in a mutual fund scheme. Now He wants some income from his deposited money.

He initially filled out an SWP form ( or applied online) to start monthly income.

Unlike FD and other income instruments, here in SWP the withdrawal amount is not fixed. However, the investor has to mention the instalment amount, frequency of income, SWP date ( the date from which he wants to have income), and SWP period i.e. for how long you want to take income from money. ( please refer image below).

Let’s take some hypothetical example

Suppose Bestii invested Rs 15 lakh in SBI Equity Hybrid ( Aggressive Hybrid Fund) on 1/12/2016 and start taking monthly income of Rs. 10000 till May 2024.

His money value increased to Rs. 22.34 lac (Please note he invested Rs 15 lac).

As I said earlier, investors have to mention the withdrawal amount. Now, suppose he chose to withdraw Rs 12000 monthly income, then his corpus value decreased to 19.30 lac.

Ok, he thought why not increase monthly income further?

So he decided to withdraw Rs. 15000 and his corpus value remained at Rs 14.90 lac.

This signifies that investors can withdraw a high monthly income from mutual funds. But the expectations should be kept moderate.

Thus, SWP is not a predefined scheme, it is an option/service given in all mutual fund schemes.

How to buy SWP in Mutual Fund

One has to give a separate request to start SWP in a mutual fund. To give such a request, one has to follow the below-mentioned procedure.

STEP 1

You deposit a lump sum amount in a mutual fund Scheme or use existing investment in a mutual fund scheme.

STEP 2

Fill a SWP Form( or do it online) mentioning your scheme name, required money each interval and date from which you wish to start taking your withdrawal amount.

You have to mention SWP cancellation/completion date as well.

STEP 3

Start getting income from your fund (after a month).

NOTE: It usually takes a month time to get income from your SWP Request. However, you can withdraw your money anytime.

How to choose the Best SWP in Mutual Funds

One can start SWP from any kind of mutual fund scheme such as debt funds, liquid funds, equity-oriented hybrid funds, debt-oriented hybrid funds, balanced advantage funds, or equity mutual funds. But risk and return change with the type of mutual fund scheme you choose.

SWP Return rate from different kind of funds, with example:

SWP Return Rate (Low duration fund)

Deposited Amount – 15 lakh

Monthly withdrawn amount – Rs 10000

Duration for which SWP taken – 5 years

Value at the end of 5 year – 15.17 lakh

SWP Interest rate from low duration fund – 8.45%

Low Duration Funds are the funds having Macaulay duration of 6 -12 months and hence low risk funds.

Period	SWP Start Date	Total Amount Invested	Total Amount Withdrawn	Scheme Market Value(Rs.)	Scheme SWP Returns	Benchmark SWP Returns
01-Jan-2014 To 01-Jan-2019	1-Jan-14	1,500,000.00	600,000.00	1,517,894.87	8.45 %	10 %

NAV Date	NAV	Units	Cash Flow	Amount	SWP Value
1-Jan-14	235	6380	-1500000	-1500000
3-Feb-14	237	6338	10000	10000	1500874
3-Mar-14	238	6296	10000	10000	1500598
2-Apr-14	241	6254	10000	10000	1505469
2-May-14	242	6213	10000	10000	1506575
2-Jun-14	245	6172	10000	10000	1509561
2-Jul-14	246	6131	10000	10000	1510992
1-Aug-14	248	6091	10000	10000	1510645
1-Sep-14	250	6051	10000	10000	1511577
1-Oct-14	252	6011	10000	10000	1513044
3-Nov-14	254	5972	10000	10000	1516590
1-Dec-14	256	5933	10000	10000	1517209
1-Jan-15	257	5894	10000	10000	1517267
2-Feb-15	259	5855	10000	10000	1519255
2-Mar-15	261	5817	10000	10000	1518241
6-Apr-15	263	5779	10000	10000	1522784
5-May-15	265	5741	10000	10000	1522178
1-Jun-15	267	5704	10000	10000	1523087
1-Jul-15	269	5667	10000	10000	1523661
3-Aug-15	271	5630	10000	10000	1526566
1-Sep-15	273	5593	10000	10000	1526285
1-Oct-15	275	5557	10000	10000	1527416
2-Nov-15	277	5521	10000	10000	1528129
1-Dec-15	278	5485	10000	10000	1526927
1-Jan-16	280	5449	10000	10000	1526295
1-Feb-16	282	5414	10000	10000	1524640
1-Mar-16	283	5378	10000	10000	1523091
4-Apr-16	287	5343	10000	10000	1531956
2-May-16	288	5309	10000	10000	1530533
1-Jun-16	290	5274	10000	10000	1530535
1-Jul-16	292	5240	10000	10000	1532035
1-Aug-16	295	5206	10000	10000	1536747
1-Sep-16	297	5173	10000	10000	1538053
3-Oct-16	300	5139	10000	10000	1540591
1-Nov-16	301	5106	10000	10000	1539373
1-Dec-16	305	5073	10000	10000	1548808
2-Jan-17	306	5041	10000	10000	1541894
1-Feb-17	308	5008	10000	10000	1543181
1-Mar-17	309	4976	10000	10000	1539848
3-Apr-17	312	4944	10000	10000	1540854
2-May-17	313	4912	10000	10000	1537889
1-Jun-17	315	4880	10000	10000	1537966
3-Jul-17	317	4849	10000	10000	1537730
1-Aug-17	320	4817	10000	10000	1540086
1-Sep-17	322	4786	10000	10000	1539585
3-Oct-17	323	4755	10000	10000	1536894
1-Nov-17	325	4724	10000	10000	1534428
4-Dec-17	326	4694	10000	10000	1531908
1-Jan-18	327	4663	10000	10000	1526473
1-Feb-18	328	4633	10000	10000	1521529
1-Mar-18	330	4603	10000	10000	1519614
3-Apr-18	334	4573	10000	10000	1525521
2-May-18	334	4543	10000	10000	1517916
1-Jun-18	335	4513	10000	10000	1512143
2-Jul-18	338	4483	10000	10000	1513942
1-Aug-18	340	4454	10000	10000	1514537
3-Sep-18	342	4425	10000	10000	1514146
1-Oct-18	343	4395	10000	10000	1509730
1-Nov-18	346	4367	10000	10000	1508986
3-Dec-18	348	4338	10000	10000	1511596
1-Jan-19	351	4309	10000	10000	1511913
15-Jan-19	352	4309	1517895	1517895	1517895

Here in the above example

• In above calculations Mr. Ram had deposited Rs 15 lakh initially in Low Duration Fund and took income of Rs 10000 each month for 5 years.
• The value of your money after completion of 5 year is Rs 15.17 lakh.
• Please notice that few units are sold on monthly basis and money is liquidated and paid to Mr. Ram.

SWP Return Rate ( Dynamic Asset Allocation Fund):

For simplicity the entire long chart is not shown, but only given in short format.

Period	SWP Start Date	Total Amount Invested	Total Amount Withdrawn	Scheme Market Value(Rs.)	Scheme SWP Returns	Benchmark Market Value	Benchmark SWP Returns
01-Jan-2014 To 01-Jan-2019	1-Jan-14	1,500,000.00	600,000.00	1,943,052.15	12.93 %	1,980,472.55	13.29 %

SWP Return Rate( Balanced Debt Fund)

Period	SWP Start Date	Total Amount Invested	Total Amount Withdrawn	Scheme Market Value(Rs.)	Scheme SWP Returns	Benchmark Market Value	Benchmark SWP Returns
01-Jan-2014 To 01-Jan-2019	1-Jan-14	1,500,000.00	600,000.00	1,825,405.80	11.76 %	1,529,047.89	8.58 %

• From the above charts you can figure it out that how SWP works.
• You may get different return and different maturity value from different schemes.
• The return totally depends on risk taken by the scheme.

SWP Interest Rate

SWP Interest rate is never fixed. This interest rate depends on many factors such as type of scheme, market conditions, when you take withdrawal and many other factors.

However, for a rough estimate one can expect a 4%-6% return from a liquid fund, 4%-8% from a debt oriented scheme.

Whereas monthly withdrawal from a balanced, dynamic asset allocation fund varies from 7% – 9%. Please note that these interest rate completely depends on market. In a negative market one can register higher loss in the scheme and this may result in faster capital erosion.

Here you should be mentally prepared to have fluctuated maturity value.

There is risk involved in the SWP in mutual funds. It is not 100% safe as Govt.schemes.

SWP Advantages

Taking monthly income from mutual fund through SWP is a great option. One may get better returns from SWP as compared to traditional option such as LIC Annuity Plans, POMIS, SCSS and PMVVY.

• Assured fixed income: Once you set a withdrawal amount, you get a fixed amount at a specified date.
• No worries: Just like dividend payment uncertainty, you don’t have to wait for the income arrival. It is fixed simply. ( read more about dividend mutual funds)
• Better tax Efficient investment : Certainly SWP from mutual fund is also a tax efficient way to take income from your money. Since the profits ( capital gain) tax is low in Equity oriented mutual fund, it makes it further lucrative option for investors. In addition debt mutual fund tax is at par for initial 3 years and thereafter it is lower than the other debt oriented investments.
• One time setup process: You don’t have to instruct or visit the AMC office and you can set up SWP in minutes.
• Existing Investment Use: There is no need to withdraw your money from existing mutual fund. One can just start taking income from existing MF Schemes.
• SWP works best with the simultaneous investment in equity and debt oriented portfolios. One can use bucket strategies to get best out put from their MF investments.

Please connect with us for making a Retirement Plan Strategies Preparation.

SWP Disadvantages

Although taking monthly income from SWP in mutual fund is a great option. But still it has some disadvantages also.

Let’s look at the Systematic withdrawal plan disadvantages:

• The return rate is not guaranteed and it depends market ( equity/debt) conditions and other factors.
• The maturity value depends on the return generated by the scheme and amount of withdrawal you have taken.
• Whether your scheme books profit or loss, withdrawal will be given to you each month on chosen date.
• In case scheme is making loss/profit, the relevant units are sold and money given to you.
• The investor can erode a higher number of units in bearish market.

Tax Implication of SWP Mutual Fund:

Type of Fund	Holding Period less than 3 Year	More than 3 year
Debt Fund/ Liquid/Low Duration/ Debt Balanced Fund	Profit will be added to you income and taxed as per you income tax slab rate	LTCG – 10% with indexation Or 20% without indexation
Equity mutual fund	Holding Period less than 1 Year	More than 1 year
Equity MF/Equity oriented Balanced Fund/Dynamic Asset Allocation Fund	15% of Profit	Long Term Capital Gain more than Rs 1 lac is taxable @10%

Things to consider before investing in SWP Mutual Funds;

• Exit Load: Before investing a fund for SWP exit load is an important factor to consider. Try to invest in the funds with zero exit loads.

Tips: Liquid mutual Fund and Low duration category of funds usually have zero exit load. You can consider investing in those funds.

If you chose other category of fund then it is advisable to start withdrawal after completion of exit load duration of fund. Till that time you may invest in liquid fund for one year or so.

• Choose withdrawal date carefully: Suppose you require money between first 5 days of the month, up to

 5th of every month, choose SWP date as 31^st of each month.

Tips: Sometimes money payment may be delayed due to some holiday or any other operational issues. So, it is wiser to choose date 3-4 days prior to your cash flow date.

• Please do not invest in Equity Mutual Funds for SWP: You must have read blogs or got suggestions to invest in equity fund and start SWP. There are few disadvantages of taking SWP from Equity mutual fund
• The money value can erode substantially due to market volatility.
• You may get lower return due to market movement to lower cycle.
• Usually all equity mutual fund have exit load of 1% if you withdraw before completion of one year.
• You can get low return or loss on your money.
• You may live in uncertainty due to market volatility.
• Consider Past performance: You should consider past performance of last one, three, five year for the fund. You should also analyse the fund manager performance. Is the fund deviating from its usual path or not.
• Risk Stats: Various parameters like risk return ratio and risk stats also should be checked.
• Combining Diversified Equity Fund: Usually this corner is left untouched or highly done part, in case of senior citizens.
• Depending on your dependency on your invested money and your risk bearing capacity a senior citizen should consider investing at least 10%-20% in diversified equity mutual fund so that he can make his money grow.  Investing in equity should be considered seriously if you don’t want to feel cash crunch later in your life.
• Take Help of a Financial Planner:  Taking help of a professional will always help you to take right decisions.

FAQ

Which is best SWP Fund?

For SWP, investor may consider low duration/liquid/ Balanced Debt or Dynamic Asset allocation Fund. Choice of fund totally depend on life stage, risk bearing capacity and other factors such as taxation and dependency of money.

What is the best way to invest money for regular income and good return on money in long run?

You can consider investing in low duration/liquid/ Balanced Debt or Dynamic Asset allocation Funds and along with that invest your money in diversified equity funds.

From Which company should I buy fund to start SWP?

For starting a SWP you can consider any AMC Fund with zero exit load.

I want Rs 30000 per month. How much amount I must deposit to get SWP of said amount?

If you wish that your money value remain same after completion of duration you can consider 7-8% return on your invested amount.

Is SWP risky?

If you choose the right fund and right strategy than SWP is not risky, but you should be aware of your money and stats of the fund so that you can take informed decision.

There is no need to worry as long as if you have invested your money in liquid or low duration funds as these are debt funds which has no lena dena from market.

In case of balance and Dynamic Asset allocation fund as you have made investment for 5 long years and the market movement is momentary. There is nothing to worry but be cautious.

Can I erode my money through SWP?

You can erode your money value if you take high monthly withdrawal amount as compared to rate of return. To compensate money value erosion you may consider 10-20% amount of money investing diversified equity funds.

please watch the video to understand the concept

Is SWP good or bad?

SWP is a very good option to opt for regular income from mutual fund. Appropriate return expectation and choosing best SWP mutual fund is the key to success in SWP mutual fund.

If we compare monthly income and return from SWP mutual fund with other investments, then the returns are far better.

Will my money exhaust after completion of duration or after few years?

In some cases money value may erode if withdrawal amount is high as compared to interest rate. You can choose to withdraw higher amount from your mutual fund scheme if you consider investing 10-20% money in diversified equity fund so that eroded value of money can be compensated by the return from equity funds.

What is the best way to take SWP from mutual funds?

Best way is to take regular income from debt mutual fund and invest some part in diversified equity fund.

please watch the video to understand the concept.

Conclusion:

A Systematic withdrawal Plan (SWP) mutual fund scores over other traditional method for taking regular payout. This option gives inflation adjusted return to you and better way of investing. SWP is a convenient way to withdraw your money and fulfilling your regular monthly needs.

Now in my view the best SWP for monthly income is low risk mutual funds such as liquid, ultra low duration, low duration or short term funds. These funds have low risk and return profile and are not stock market linked.

To get the best output from SWP mutual fund, one can invest in bucket strategy in which one keep one basket for safe and steady income from debt funds and another basket for appreciation.

Thus one can have laddoos in both the hands. On one hand taking safe income and on another hand money growth.

Finding it difficult to start with, Talk to the expert to choose best SWP Plan for you. ( 15 minutes no obligation meeting)

Additional Reading

Best Investment Plans for Senior Citizens 2023