What is an SWP in mutual funds, and how does it work?

An SWP (systematic withdrawal plan) is an instruction to your fund house to sell a set amount of your units at regular intervals, for example every month, and pay the money into your bank account. It is not interest. Each payment comes from selling your own units, so what you have left shrinks whenever withdrawals run ahead of the fund's growth.

What is an SWP in mutual funds?

An SWP is a standing instruction to your fund house to sell a set amount of your units, or a set number of units, at regular intervals and pay you the proceeds. SEBI, the market regulator, describes it as a standing instruction for periodic redemption of a specified number of units or amount. Redemption just means selling units back to the fund.

The rest of your money stays invested. Only the units sold leave the fund, and the units left keep moving with the fund's NAV, which is the price of one unit.

You choose the amount and how often it is paid. The fund house sets the terms around that, and they differ. Two examples, each from one fund house's document and not a rule for every fund:

• The Bajaj Finserv Liquid Fund scheme document allows monthly, quarterly, half-yearly and annual frequencies, with a minimum of 2 instalments of ₹1,000 each.
• SBI Mutual Fund's statement of additional information sets a minimum of ₹500. With no end date given, it treats the SWP as perpetual, which means it runs until you stop it.

The HSBC Ultra Short Duration Fund's scheme document offers a capital appreciation option, which withdraws only the gains. The Mahindra Manulife Flexi Cap Fund's document offers an "SIP cum SWP", where withdrawals begin once the SIP period is over. For the money-in and money-moved plans, see what a SIP is and how to switch mutual fund schemes, which covers the STP (systematic transfer plan).

If your units sit in a demat account, you can't set up an SWP on them yet. SEBI has told the depositories to offer it: by units from 31 January 2027 and by amount from 30 April 2027.

An SWP pays no fixed rate. You receive the amount you chose, but the units that pay it are sold at whatever the NAV is that day. ELSS units cannot be sold until three years from each allotment, so an SWP can draw only on units past that point. Our guide on what to do after your ELSS lock-in ends covers that stage.

How does an SWP work, step by step?

On each date, the fund house turns your rupee amount into units and sells them. Units sold equal the withdrawal divided by that day's NAV. Take hypothetical NAVs: ₹5,000 at a NAV of ₹25 sells 200 units. At a NAV of ₹20, the same ₹5,000 sells 250 units.

Two SEBI rules apply to any redemption. For schemes other than liquid and overnight funds, a request up to 3 pm on a business day gets that day's NAV. The money must reach you within 3 working days, or 5 for schemes with at least 80% in permissible overseas investments. How to sell mutual funds online lays out the steps of a sale.

Which units go first matters for tax. Several scheme documents say redemptions are done on a first-in, first-out basis, so the oldest units go first. Each unit keeps its own cost and its own holding period, which is how long you have held it.

Why a fixed withdrawal sells more units when prices are low

A fixed rupee amount sells more units when the NAV is low. Say you withdraw ₹5,000 three times, at NAVs of ₹25, ₹20 and ₹25. That sells 200, 250 and 200 units, which is 650 units for ₹15,000. You received about ₹23.08 per unit. The simple average of the three NAVs is about ₹23.33.

So the average price you got is below the average NAV. It can never be above it. In a long fall, your units run down faster, and fewer are left to recover when prices rise.

How is each SWP withdrawal taxed?

Each withdrawal is a sale of units, and tax falls only on the gain in those units, not on the whole amount. The gain is what you received minus what you paid for the units sold. SBI Mutual Fund's document says the same: an SWP redeems units that represent the amount withdrawn, so it is treated as capital gains.

The rate depends on the kind of fund and on each unit's holding period. These rules are from the Income-tax Act, 2025 as amended, for the 2026-27 tax year, for a resident investor.

• Equity-oriented fund (at least 65% in shares of Indian listed companies, on the annual average, with securities transaction tax paid on the sale). Units held 12 months or less: gains taxed at 20%. Units held longer: 12.5% only on gains above ₹1,25,000 in the tax year.
• Specified Mutual Fund units acquired on or after 1 April 2023 (a fund with more than 65% in debt and money market instruments). The gain is treated as short-term whatever the holding period, so it is taxed at your slab rate, the normal income-tax rate on your income.
• Other funds, such as a balanced hybrid fund, a gold fund of funds or a non-debt international fund of funds. Units held 24 months or less: taxed at your slab rate. Held longer: 12.5%.

The ₹1,25,000 is one allowance per person per tax year, shared with your gains from shares and other equity funds. For the debt side, read how debt mutual funds are taxed.

A resident's redemption gains carry no TDS, which is tax deducted before money reaches you. That is not the same as no tax. The gain is still taxable and goes in your return. For the per-instalment detail, see how SIP returns are taxed.

Worked example: tax on one ₹5,000 withdrawal

Take hypothetical NAVs. Ramesh, 61, bought units at ₹20. His SWP withdraws ₹5,000 when the NAV is ₹25, which sells 200 units that cost him ₹4,000. The gain is ₹1,000. The other ₹4,000 is his own money coming back.

• Equity-oriented fund, units held 12 months or less: 20% of ₹1,000 is ₹200, plus 4% cess of ₹8, so ₹208. Cess is an extra 4% charge on the tax.
• Equity-oriented fund, units held longer: the gain is long-term. If he has no other such gains that tax year, it sits inside the ₹1,25,000 allowance, so no tax.
• Specified Mutual Fund units bought on or after 1 April 2023: the ₹1,000 is taxed at his slab rate whatever the holding period. At a 20% slab that is ₹208 with cess; at 30%, ₹312.

How long will your money last?

How long the money lasts depends on the amount, how often you withdraw, and what the fund actually earns, which is not fixed. The table follows the Koshex SWP calculator: each withdrawal is taken at the start of the month, and the rest then grows at one-twelfth of the yearly rate.

Ramesh puts ₹6,00,000 of his gratuity into a fund. Suppose the fund grew a steady 7% a year. A real fund's NAV moves up and down, so this only shows the effect of different withdrawals.

At ₹5,000 a month, 204 full withdrawals are paid, and the money runs out in the 205th month, about 17 years in. At ₹7,000 a month, 118 full withdrawals are paid, and the money runs out in the 119th month, just under 10 years in.

At ₹3,500 a month, ₹5,96,467 is still left after 10 years, and the money has not run out after 40 years. At an assumed 1% a year instead, ₹5,000 a month leaves ₹31,791 after 10 years and runs out in the 127th month.

SWP or IDCW: which suits a regular income?

Neither is better in every case; they differ on who decides the amount, what happens to the NAV and what is taxed.

IDCW stands for Income Distribution cum Capital Withdrawal. SEBI named it so because a payout can include some of your own capital, not only profit. Whenever the fund pays IDCW, the NAV falls by the amount paid out.

An IDCW amount is decided each time and can be cut or skipped. One scheme document gives no assurance that IDCW will be paid regularly. An SWP pays the amount you choose, as long as there are units to sell.

The tax difference shows in the ₹5,000 case. Suppose an IDCW option paid Ramesh ₹5,000 in a month. All of it is income at his slab rate. At 20%, that is ₹1,000 plus ₹40 cess, so ₹1,040. The SWP withdrawal above, from an equity-oriented fund with units held 12 months or less, came to ₹208 on its ₹1,000 gain.

TDS does not change what is taxable. It is a payment towards tax you already owe. Twelve IDCW payouts of ₹5,000 would be ₹60,000 in a year, with ₹6,000 deducted as TDS.

For the IDCW side in full, read growth vs IDCW. For the wider income question, read can you get a monthly income from mutual funds.

What are the drawbacks of an SWP?

The main drawback is that the money can run out, because each payment is a sale of your own units. The ₹7,000 row in the table above shows it.

A fall early on is costly, because a fixed withdrawal then sells more units at low prices.

Exit load applies too. Exit load is a fee some funds charge if you sell within a set time after buying. The Bajaj Finserv Liquid Fund document says an SWP is subject to the scheme's applicable exit load, and the other scheme documents checked say the same. Some funds charge none, so check the scheme document.

How do you start or stop an SWP?

You register an SWP with the fund house, or through a distributor, and the scheme document holds the terms. Bajaj Finserv Liquid Fund processes a registration within 5 working days.

To stop it, you give written notice, and the notice period is a few days, as set by the fund house. Bajaj Finserv's document asks for 7 business days before the next instalment. SBI Mutual Fund's asks for the form at least 10 days before the date you want it to end.

When the units run out, the SWP stops. At Bajaj Finserv Liquid Fund, it also ends on notice of the investor's death or incapacity.

Customers can set up an SWP on Koshex. Koshex also helps you choose a fund that suits your goal and timeline, reviews your holdings over time and flags changes, and talks you through sharp market falls before you redeem. You can see the funds in our mutual funds section.