Are you seeking a reliable source of income with low risk? If so, this blog is a must-read for you!

The term ‘regular income’ often conjures up thoughts of fixed deposits, but these investment options tend to offer meagre returns that don’t keep pace with inflation. But fear not! There’s a solution in the form of a three-letter acronym – SWP.

Let’s dive in for a closer look.

What is a Systematic Withdrawal Plan?

A systematic withdrawal plan (SWP) is an investment option where an investor can withdraw a fixed amount or a percentage of their investment at regular intervals (e.g. monthly, quarterly, half-yearly, or annual basis as per their requirements) from a mutual fund scheme. It provides a steady income stream for the investor.

As the term implies, an SWP allows investors to periodically receive money from their selected mutual fund scheme by redeeming units. Investors can select the withdrawal date and the amount to be credited to their account by the Asset Management Company (AMC). The number of units redeemed for the cash flow is determined by the amount invested in the SWP and the scheme XYZ on the date of withdrawal.

Why do you need a Systematic Withdrawal Plan?

Market fluctuations can have a significant impact on mutual fund investments, causing their value to rise and fall. However, with a systematic withdrawal plan (SWP), investors can take control of their investments and plan their withdrawals based on their financial needs. The SWP allows investors to receive a fixed amount or a percentage of their investment at regular intervals, giving them the flexibility to time their withdrawals based on market conditions and their personal financial situation. By using an SWP, investors can potentially minimise the impact of market fluctuations on their investments and ensure a steady income stream.

Why is the Systematic Withdrawal Plan a Good Investment Option?

Two primary reasons make a systematic withdrawal plan (SWP) a favourable investment option. Firstly, the withdrawals, which are essentially redemptions, are exempt from tax deductions at source.

However, capital gains are taxed on the withdrawn amount. It is also possible to arrange the withdrawals in such a way that only the gains made on the investment are drawn, preserving the capital while allowing for a regular flow of gains.

Types of SWP

SWP can be divided into two categories based on the withdrawal options available:

  1. Fixed withdrawal plan: A Fixed Withdrawal Plan (FWP) is a type of Systematic Withdrawal Plan (SWP) where the investor withdraws a fixed amount of money at regular intervals. This type of SWP is ideal for investors who require a fixed and predictable income stream.
  2. Capital appreciation: A Capital Appreciation Plan (CAP) is a type of Systematic Withdrawal Plan (SWP) where the investor withdraws a variable amount of money at regular intervals, based on the appreciation of their invested capital. This type of SWP is ideal for investors who are looking to maximise the potential appreciation of their investments and are not as concerned with a fixed and predictable income stream.

Benefits of SWP

  1. Regular earnings: The Systematic Withdrawal Plan (SWP) provides investors with a consistent source of income from their investments, making it a valuable option for those who require regular funds for daily expenses.
  2. Increased capital: If the withdrawal rate is lower than the return on the funds, the SWP results in an increase in the investor’s capital. Additionally, it is important to note that individual investors are not subject to TDS (Tax Deducted at Source) on the SWP amount.
  3. Easy to work with: The investor has the freedom to choose the investment amount, length, and frequency. The SWP can be discontinued by the investor at any time.

Disadvantages of SWP

  1. The investor may experience significant losses if the investment plan fails or if the withdrawal rate is higher than the return.
  2. The systematic withdrawal plan only provides a regular income and is not suitable for long-term investment

Tax Implications of SWP

For debt funds, capital gains are considered as part of the investor’s income and taxed accordingly if the investment is held for less than 36 months. However, if the investment period is longer than 36 months, the gains are considered long-term and taxed at a rate of 20%.

Equity funds with a holding period of less than 12 months are classified as short-term gains and taxed at 15%. If the assets are held for more than 12 months, they are considered long-term and taxed at 10%.


SWP is an attractive investment option as it provides a consistent source of income on your investment. It is a good investment strategy and offers tax-efficient returns without any TDS on gains, making it ideal for those seeking fixed income.

However, it is important to keep in mind that the success of SWP largely depends on the fund being invested in. It is crucial to assess if the investment aligns with your portfolio before making a decision.

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