What Is an SWP? Monthly Withdrawals Explained With an Example

SWP stands for Systematic Withdrawal Plan. You invest a lump of money once, and then take a fixed amount out of it every month.

A SIP puts money in every month. An SWP takes money out every month.

An example

Ravi invests ₹10 lakh in a mutual fund and asks for ₹10,000 every month to be paid into his bank account. The rest of the money stays invested and keeps growing, or falling, with the market.

Say the money grows 8% a year. This is an example, not a forecast. After 10 years:

Ravi took out more than he put in, and money is still left. That works only because the money that stayed invested kept growing. At a lower return, less would be left.

What happens each month

1. Your money grows a little.
2. Your fixed amount is taken out.
3. What remains stays invested, and the same thing happens next month.

The yearly return is turned into a monthly one, so 8% a year means your money grows exactly 8% in a year.

SWP and SIP side by side

Many people build up money with a SIP first, and take it out with an SWP later.

Should the monthly amount go up?

Prices rise every year, which is called inflation. If you take out the same amount for many years, it buys less and less. So some people raise the monthly amount a little each year. A higher withdrawal makes the money run out sooner, so try both and see the difference.

What to remember

1. An SWP is one lump of money invested once, and a fixed amount taken out every month.
2. What stays invested can grow or fall, so the amount left is never certain.
3. Tax, exit load and fund costs are not counted in examples like this one. Ask a qualified tax professional how withdrawals are taxed for you.

Want to see your own numbers? Try the lumpsum SWP calculator. Next, read how long will your SWP money last.

Mutual fund investments are subject to market risks, read all scheme related documents carefully. This is a way to think, not advice. Your own situation decides.