Definition of SWP (Systematic Withdrawal Plan)
A SWP (Systematic Withdrawal Plan) is the reverse of a SIP. Instead of investing a fixed amount regularly, you automatically redeem a fixed amount from your mutual fund at regular intervals (monthly, quarterly) to create a predictable income stream.
SWP is particularly popular among retirees who want regular income from their investment corpus without depleting the principal too quickly. By strategically withdrawing only the returns (and leaving the principal intact), you can create a tax-efficient pension-like income — especially from equity mutual funds where only gains above ₹1.25 lakh/year attract LTCG tax.
Unlike IDCW (which reduces NAV and is fully taxable), SWP redemptions are taxed only on the capital gain portion of each withdrawal (the rest is return of principal). This makes SWP a much more tax-efficient option for regular income. SWP is the recommended strategy for funding expenses in retirement from an equity corpus built over a long SIP period.