The BSE Sensex in 2025 is up 4.4% as of 27 May 2025.
Markets have been rather volatile amid geopolitical, trade, and macroeconomic risks.
It’s not easy beating the market in such an environment. If you want to earn better returns than the benchmark, then selecting the right mutual fund scheme is critical.
If you choose wisely, it could also help you achieve financial goals such as retirement.
One tool you can use in this regard, is the systematic withdrawal plan (SWP) in mutual funds.
This article explains which are the top five mutual funds for SWP.
But first, you must know what a SWP is and how it works…
What is SWP?
SWP or Systematic Withdrawal Plan is a facility provided by mutual funds to withdraw money invested in a mutual fund scheme in a systematic manner.
This is typically monthly, quarterly, or semi-annually at predefined dates. The withdrawal could be fixed or a variable amount.
The withdrawn amount provides periodic income, while the balance, not withdrawn yet, continues to earn you returns, i.e., there is potential for the growth of your capital along with the income from the SWP.
The systematic and disciplined withdrawal process provides cash flow without having to sell and exit your mutual fund investment.
Here’s How SWP Works…
Say you wish to systematically withdraw Rs 10,000 each month from an investment value of Rs 1 lakh.
The table below shows how it works.
When the NAV is up, a smaller number of units will be withdrawn and vice versa.
With every monthly withdrawal, your investment in the fund gets diluted by the market value (NAV) of the units that you withdraw.
The rest of the mutual fund units will remain invested and continue to earn returns for you.
For illustration purposes only and should not be considered as recommendatory
Although SWPs are considered beneficial, you should consider the market condition or direction. In volatile markets with a positive trend, SWPs usually work in your favour.
When market conditions worsen and the NAV of the mutual fund scheme declines, you end up redeeming more units to make a systematic withdrawal that could deplete the corpus in the fund sooner than expected.
Hence, it is essential to have SWP in schemes with a consistent and strong track record. If the scheme itself is not performing consistently well, doing an SWP from it may not make sense.
Which Are the Top Mutual Fund Schemes for SWP?
We have listed the top-performing diversified equity-oriented mutual fund schemes across the important sub-categories.
We have considered rolling returns instead of point-to-point returns since it is a better means of assessing the returns of mutual funds over a long holding period, This is because it irons out the volatility and provides smoothed returns over the chosen period.
For evaluating risk-adjusted returns we have considered the information ratio and the up/down capture ratio.
The information ratio reflects a fund manager’s skill and ability to consistently generate excess returns relative to a benchmark.
The up/down capture ratio measures the degree to which a fund has outperformed or underperformed during market uptrends and downtrends.
Top 5 Diversified Equity Mutual Funds Across Categories
Rolling period returns are calculated using the Direct Plan-Growth option. Returns over 1-year are compounded annualised.
The Information Ratio and Up/Down Capture Ratio are over a 3-year period.
Please note, that this table represents past performance. Past performance is not an indicator of future returns.
The list of schemes in the table here is not exhaustive. Top return schemes from each key subcategory of equity mutual funds considered.
The securities quoted are for illustration only and are not recommendatory.
Speak to your investment advisor for further assistance before investing.
Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully.
Source: ACE MF
The schemes in the table above are among the top-performing schemes over long periods, on a risk-adjusted basis. With high-quality underlying portfolios, these schemes have created wealth for their investors.
They have fared well across bull and bear market phases and outperformed their respective benchmark indices.
Who Should Consider SWP?
SWPs are suitable for retirees who need a consistent income stream, or investors looking for cash flows for future expenses.
Note that if the withdrawal rate is higher, the investment corpus lasts shorter than when the withdrawal rate is low. There is no definitive answer as to what the withdrawal rate should be.
You need to ensure that you don’t end up over-withdrawing. Otherwise, there is a risk of outliving the money needed to meet your retirement expenses.
What About the Tax Implications of SWP?
Withdrawals are redemptions and are thus subject to capital gain tax.
The gains on your equity mutual fund investments if withdrawn within 12 months from the date of investment, are treated as Short Term Capital Gains (STCG) and taxed at 20%.
If the investment is withdrawn after 12 months, the gains are called Long Term Capital Gains (LTCG) and are taxed at 12.5%, if the gains are more than Rs 1.25 lakh in a financial year.
If it is a debt mutual fund scheme from where you are doing systematic withdrawals, the net gains will be added to your gross total income (GTI) and taxed as per your income-tax slab.
Conclusion
The SWP option can provide you with steady cash flow with systematic withdrawals despite market volatility.
It makes timing the market irrelevant for your withdrawals. You also benefit from rupee-cost averaging and compounding.
However, keep in mind that during prolonged downturns or bear market phases, the NAV of the mutual fund can fall and with SWP the investment value may get depleted sooner than expected.
When opting for SWP, assess your needs, market conditions, and if it’s truly worthwhile taking the SWP route.
Be thoughtful in your approach.
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…
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