SWP (Systematic Withdrawal Plan) is a facility that allows mutual fund investors to withdraw a fixed or variable amount from their investments at regular intervals — monthly, quarterly, or annually.
**How SWP works**: You instruct the fund house to redeem a specific amount worth of units from your fund at regular intervals. The equivalent number of units are sold at prevailing NAV, and the amount is credited to your bank account.
**Common use case**: Retirement income. If you've accumulated ₹1 crore in equity mutual funds by retirement, you can set up a monthly SWP of ₹30,000–40,000. As long as your portfolio's return rate exceeds the withdrawal rate, your corpus remains intact or grows.
**SWP withdrawal rate guideline**: The 4% rule suggests withdrawing up to 4% of corpus annually is sustainable. On ₹1 crore, that's ₹4 lakh/year or ₹33,333/month.
**Tax on SWP**: Each withdrawal is treated as redemption. For equity funds held over 1 year, LTCG applies (12.5% on gains above ₹1.25 lakh/year). The long-term nature of SWP typically keeps this tax very low compared to FD interest.
**SIP to SWP lifecycle**: Build corpus through SIP during working years → transition to SWP during retirement for regular income. This is the complete mutual fund lifecycle for most investors.