Systematic Withdrawal Plan (SWP) in India: How to Generate Monthly Income from Mutual Funds
What if you could turn your mutual fund investments into a steady monthly paycheck-without touching the principal? That’s the power of a Systematic Withdrawal Plan (SWP) in India. It’s not a magic trick. It’s a simple, tax-efficient strategy used by thousands of retirees, freelancers, and anyone who needs predictable cash flow without selling their entire portfolio at once.
How SWP Actually Works
An SWP lets you withdraw a fixed amount from your mutual fund investment at regular intervals-monthly, quarterly, or yearly. Every time you withdraw, the fund house sells just enough units to give you the amount you asked for. The rest stays invested, continuing to grow.
Let’s say you invested ₹10 lakh in a balanced advantage fund. You set up an SWP to withdraw ₹20,000 every month. The fund house calculates how many units of the fund equal ₹20,000 on that day and redeems them. If the NAV is ₹50, they sell 400 units. Next month, if the NAV rises to ₹52, they sell only 384 units. Your corpus shrinks slowly, but your income stays the same.
This is different from a dividend plan, where payouts depend on the fund’s profits and can vary-or disappear. With SWP, you control the amount and timing. You decide how much you need, not the fund manager.
Why SWP Beats Fixed Deposits for Long-Term Income
Many Indians rely on fixed deposits (FDs) for monthly income. But FDs are losing ground. As of 2025, top FD rates hover around 7.5%-after tax, you’re looking at 5-6% net returns. Inflation is still running at 5.2%. That means your purchasing power is shrinking every year.
SWPs, on the other hand, can deliver higher returns over time because they’re linked to equity or hybrid funds. A well-chosen balanced fund has historically returned 10-12% annually over the last decade. Even after withdrawing ₹20,000/month, the remaining corpus can keep growing if markets perform reasonably.
Take a 65-year-old retiree with ₹80 lakh in a hybrid fund. With a 7% annual SWP (₹46,667/month), their corpus lasts 25+ years-and often grows by 2-3% annually after withdrawals, according to data from AMFI and SEBI studies. That’s not possible with FDs.
Choosing the Right Fund for Your SWP
Not all mutual funds are built for SWPs. You need funds that balance growth and stability.
- Hybrid Balanced Advantage Funds: These adjust equity exposure based on market valuations. Ideal for SWPs because they reduce risk during crashes and stay invested during rallies. Examples: ICICI Prudential Balanced Advantage, HDFC Balanced Advantage.
- Conservative Hybrid Funds: 20-40% in equity, rest in debt. Lower volatility. Good for risk-averse investors. Examples: SBI Conservative Hybrid, Axis Conservative Hybrid.
- Monthly Income Plans (MIPs): Mostly debt with a small equity slice. Lower returns but stable. Avoid if you want inflation-beating growth.
Avoid pure equity funds for SWPs unless you have a 10+ year horizon. A market crash early in your SWP can force you to sell more units at lower prices, depleting your corpus faster. Debt funds alone? They won’t beat inflation long-term.
How Much Can You Safely Withdraw?
The golden rule: Don’t withdraw more than 6-8% of your corpus annually. That’s about ₹5,000-₹6,667 per month for every ₹10 lakh you invest.
Here’s why:
- At 6% annual withdrawal (₹5,000/month per ₹10 lakh), your corpus lasts 30+ years even with 5% inflation and 9% returns.
- At 10% withdrawal (₹8,333/month per ₹10 lakh), you risk running out in 15-20 years, especially if markets dip early.
Use this simple formula: Annual Withdrawal = Corpus × 7%. Then divide by 12 for monthly amount.
Example: ₹1.2 crore corpus × 7% = ₹8.4 lakh/year → ₹70,000/month. That’s sustainable if your fund delivers 9-10% average returns.
Tax Efficiency: Why SWP Beats Dividends
Dividend income from mutual funds is now fully taxable in your slab. Plus, funds deduct TDS at source. No planning. No control.
SWP is far smarter. Each withdrawal is treated as a redemption. Only the capital gain is taxed.
- Equity-oriented funds (more than 65% equity): Long-term gains (held over 1 year) are taxed at 10% above ₹1 lakh/year. No indexation. Short-term gains (under 1 year) are taxed at 15%.
- Debt-oriented funds: Long-term gains (held over 3 years) are taxed at 20% with indexation. This is a huge advantage. Indexation adjusts your purchase price for inflation, lowering your taxable gain.
Example: You invested ₹5 lakh in a hybrid fund in 2020. By 2025, it’s worth ₹8 lakh. You withdraw ₹1 lakh via SWP. Only the gain portion-₹40,000-is taxable. With indexation, your cost may be adjusted to ₹6.2 lakh, reducing your gain to just ₹18,000. That’s far better than paying tax on the full ₹1 lakh as dividend income.
Setting Up an SWP: Step-by-Step
It takes less than 15 minutes to set up an SWP online.
- Log in to your mutual fund platform (Zerodha, Groww, AMC website, or your distributor portal).
- Go to your portfolio and select the fund you want to withdraw from.
- Click on “Systematic Withdrawal Plan” or “SWP”.
- Enter the amount you want to withdraw monthly (e.g., ₹25,000).
- Select the date (e.g., 5th of every month).
- Choose how long it should run: “Until further notice” or “For 10 years”.
- Confirm and submit.
You’ll get an email confirmation. The first withdrawal usually happens in 3-5 working days. You can pause, change the amount, or stop it anytime.
Common Mistakes to Avoid
SWP is simple-but people mess it up.
- Withdrawing too much too soon: Taking ₹1 lakh/month from a ₹1 crore corpus? That’s 12% annually. You’ll burn through your money in 12-15 years.
- Choosing the wrong fund: Putting SWP in a small-cap fund? Bad idea. Volatility will eat your income.
- Forgetting to rebalance: If your fund grows fast, your SWP percentage drops. Revisit every 2 years. If your corpus grew to ₹1.5 crore, you might raise your SWP to ₹87,500/month (7% of ₹1.5 crore).
- Ignoring taxes: Don’t assume SWP is tax-free. Track your gains. Keep records for ITR filing.
- Not having an emergency fund: SWP is for regular income, not emergencies. Keep 6-12 months’ expenses in a liquid fund or savings account.
Who Should Use SWP?
SWP isn’t for everyone. It’s perfect if:
- You’re retired or semi-retired and need predictable cash flow.
- You’re a freelancer or gig worker with irregular income and want to smooth out your monthly earnings.
- You’ve inherited a lump sum and don’t want to spend it all at once.
- You’re planning for early retirement and want to avoid selling your entire portfolio at market lows.
It’s not ideal if you:
- Need your money back in 1-2 years (use FDs or liquid funds).
- Can’t tolerate any market fluctuations (even if your fund is stable).
- Have no financial literacy and rely only on bank advisors who push FDs.
Real-Life Example: Ramesh’s SWP Journey
Ramesh, 62, retired in 2023 with ₹95 lakh saved. He didn’t want to live off interest. He put ₹80 lakh into ICICI Prudential Balanced Advantage Fund and set up an SWP of ₹55,000/month.
His fund returned 11.2% in 2023, 8.5% in 2024. Even after withdrawals, his corpus grew to ₹84 lakh by mid-2025. His monthly income stayed the same. He paid only ₹18,000 in capital gains tax in 2024-far less than what he’d have paid on dividends.
He now supplements his SWP with a small pension and rental income. He sleeps better knowing his money is working for him-not sitting idle.
SWP vs. Lump Sum Withdrawal vs. Dividend Plan
| Feature | SWP | Lump Sum Withdrawal | Dividend Plan |
|---|---|---|---|
| Income Stability | Fixed monthly amount | One-time, no recurring income | Variable, not guaranteed |
| Corpus Growth | Can continue growing | Depletes fast | Depletes slowly, but no growth |
| Tax Efficiency | Only capital gains taxed | Full gain taxed at once | Full dividend taxed in slab |
| Inflation Protection | Yes, if fund outperforms | No | No |
| Flexibility | Change amount or pause anytime | No flexibility | Cannot control dividend amount |
What Happens If Markets Crash?
This is the biggest fear. What if your fund drops 20% right after you start SWP?
Here’s the truth: SWP works better in volatile markets than you think.
If NAV falls, fewer units are sold to give you the same amount. That means you’re buying more units when prices are low, which helps your corpus recover faster. It’s like dollar-cost averaging in reverse.
During 2020, when markets crashed, investors using SWPs in balanced funds saw their corpus dip-but by 2022, most had recovered and even grown. Those who panicked and stopped SWP missed the rebound.
Don’t stop your SWP during a crash. Stay disciplined. It’s your best defense against emotional investing.
Next Steps: How to Get Started Today
Ready to build your own monthly income stream?
- Calculate your monthly income need. Be realistic-don’t overestimate.
- Figure out your corpus. How much do you have invested in mutual funds?
- Use the 7% rule to find your safe withdrawal amount.
- Choose a balanced or conservative hybrid fund. Check past 5-year returns and volatility.
- Log in to your fund platform and set up the SWP.
- Review every 12-18 months. Adjust for inflation or life changes.
You don’t need a financial advisor to do this. Most platforms make it as easy as paying a bill.
Is SWP better than FD for retirement income in India?
Yes, for most retirees. SWPs in balanced funds historically deliver higher returns than FDs and protect against inflation. FDs give fixed, low returns that lose value over time. SWPs let your money keep growing while you withdraw. Plus, SWPs are more tax-efficient due to indexation in debt-oriented funds and lower capital gains tax.
Can I change my SWP amount later?
Yes, you can increase, decrease, or pause your SWP anytime through your fund platform. Many investors raise their SWP by 5-7% every year to keep up with inflation. Just make sure your fund’s performance supports the higher withdrawal.
What happens if I run out of units in my fund?
You won’t run out unless you withdraw everything. SWP stops automatically when your remaining units are too few to cover your withdrawal amount. For example, if you have only ₹5,000 worth of units left but want ₹20,000, the system will redeem all remaining units and stop the SWP. You’ll get a final payout and can choose to restart later if you add more money.
Are SWPs taxable for NRIs?
Yes, NRIs are taxed on mutual fund redemptions under SWP just like residents. Long-term capital gains on equity funds are taxed at 10% above ₹1 lakh. Debt funds are taxed at 20% with indexation. TDS is deducted at 20% for NRIs unless they submit Form 15CA/CB. Consult a tax advisor familiar with NRI mutual fund rules.
Can I use SWP with SIPs at the same time?
Absolutely. Many people use SIPs to keep adding money to their SWP fund while withdrawing monthly. For example, you SIP ₹10,000/month into a balanced fund and withdraw ₹15,000/month via SWP. The difference comes from your existing corpus. This helps sustain income while growing your future safety net.
Final Thought: SWP Is Freedom, Not Just Income
SWP isn’t about squeezing returns. It’s about control. Control over your cash flow. Control over your taxes. Control over your peace of mind. In a world where pensions are fading and salaries are uncertain, SWP gives you a reliable, growing income stream that adapts to life-not the other way around.
You don’t need to be rich to start. You just need to start. Even ₹5 lakh in the right fund, with a ₹3,000/month SWP, can turn into a lifeline. Don’t wait for the perfect time. The best time to begin was yesterday. The next best time is now.
