SIP vs SWP: what is the difference?
Updated 11 October 2026
A SIP and an SWP are mirror images. A SIP (systematic investment plan) puts a fixed amount into a mutual fund scheme at regular intervals. An SWP (systematic withdrawal plan) takes a fixed amount out at regular intervals. One builds an investment; the other turns an investment into an income. Many people use both, one after the other.
How a SIP works
You choose a scheme, an amount and a date, and sign an auto-debit mandate with your bank. On that date every month, the amount leaves your account and buys units of the scheme at that day’s NAV (net asset value, the price of one unit). When the NAV is lower, the same amount buys more units; when it is higher, fewer. Over the years the units add up, and their value is the number of units × the current NAV.
How an SWP works
You choose a scheme you already hold, an amount and a date. On that date every month, the fund house sells (redeems) enough of your units to pay that amount into your bank account. The units that are not sold stay invested and keep rising or falling with the scheme. If the scheme grows faster than you withdraw, the balance can even rise. If you withdraw faster than it grows, the balance shrinks and can run out.
An SWP needs units that are free to sell. A scheme with a lock-in, such as a tax-saving ELSS with its three-year lock-in, cannot pay an SWP from units still inside the lock-in. With a SIP into an ELSS, each instalment’s units have their own three years.
The differences
Purpose. A SIP builds money for a goal some years away. An SWP draws on money already built, to pay regular expenses.
Holding. A SIP adds units every month, so the holding grows. An SWP removes units every month, so the number of units falls even when their value holds up.
Cash flow. A SIP is money going out of your bank account into the scheme. An SWP is money coming from the scheme into your bank account.
Benefits. A SIP spreads purchases over many prices and makes saving automatic. An SWP pays a steady amount while the rest stays invested, and only the gain in each sale is taxed.
Who uses it. SIPs suit people with a regular income who are saving. SWPs suit people who have a corpus and need an income from it, such as retirees.
A worked example of each
SIP: ₹5,000 a month for 10 years, at 12% a year if that held every year. You put in ₹6,00,000 and it grows to ₹11,61,695. The formula is M = P × [((1 + i)^n − 1) ÷ i] × (1 + i), with i = 0.01 a month and n = 120 months.
SWP: ₹50,00,000 invested and ₹30,000 taken out every month, at 8% a year if that held every year. Over 20 years you take out ₹72,00,000, and ₹69,63,401 is still invested at the end. The balance holds up because ₹3,60,000 a year is 7.2% of the corpus, below the 8% return. Take ₹10,000 a month from ₹10,00,000 instead, which is 12% a year, and the money runs out in month 10 of year 14.
One after the other: if the ₹11,61,695 from the SIP were then drawn at ₹10,000 a month at 8%, it would last 18 years and 9 months and pay out ₹22,41,351 in all.
Tax on each
A SIP pays no tax while you invest; tax comes when you sell. An SWP is a series of sales, so each withdrawal is taxed as capital gains, and only on the gain in the units sold, not on the whole amount. For equity-oriented schemes, units held more than 12 months pay 12.5% on long-term gains above ₹1.25 lakh a year, and units held 12 months or less pay 20% on the gain. Units of debt funds bought on or after 1 April 2023 are taxed at your slab rate. Units are sold first in, first out, so an SWP sells your oldest units first. Ask a chartered accountant about your own case.
What the calculators leave out
Both calculators use the same return every month. Real returns vary, and for an SWP the order matters: a fall in the first years does more damage than the same fall later, because units are being sold at low prices. Exit loads, tax and the expense ratio (already inside a scheme’s published returns) are not included.
Try your own numbers with the SWP calculator and the SIP calculator, or compare a SIP with a one-time investment in SIP vs lumpsum.
Questions people ask
- Can I run an SWP from the fund my SIP built?
- Yes. Once the units are free of any lock-in, you can stop the SIP and start an SWP from the same scheme, or move the money to another scheme first.
- Is SWP money taxed as income?
- No. Each withdrawal is a sale of units, so only the gain in it is taxed, as capital gains, at the rates for that kind of scheme.
- Can the SWP corpus run out?
- Yes, when the yearly withdrawals are a larger share of the corpus than the return. ₹10,000 a month from ₹10 lakh at 8% runs out in year 14.
- What is an STP?
- A systematic transfer plan moves a fixed amount every month from one scheme to another of the same fund house, often from a liquid or debt scheme into an equity scheme, to spread a large investment over time.