Here's how SWP is different from SIP

SWP can be of two types; fixed withdrawal and appreciation withdrawal. In case of a fixed withdrawal scheme, a fixed amount is sold every month by an AMC and the amount is credited to the investor’s bank account. While in an appreciation withdrawal, any profits made from the time of investment can be redeemed, explained Bankbazaar.com. These units are redeemed on a first in, first out (FIFO) basis, meaning the units purchased first are redeemed first.

SWP can be helpful during retirement when an individual does not have a regular income and are reliant on investments. “SWPs allow you to remain invested in the bulk of your corpus while letting you redeem only what you need to spend,” Bankbazaar.com said. It also allows you to make a disciplined investment with periodical redemption.

Tax implications for both SWP and SIP are similar as the actual taxes to be paid depends on the tenure and nature of the fund.

According to Bankbazaar.com, if the units redeemed have a tenure less than one year, the investor will have to pay short-term capital gains (STCG) tax at 15.45 percent. For units with a tenure longer than a year, there is no long-term capital gains (LTCG) tax, thus making the returns tax-free where securities transaction taxes have been paid.

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