Top Performing SWP Mutual Funds for 2025

The recent market correction has caused investors to feel anxious which leads them to seek stable financial options that deliver reliable income streams.

A Systematic Withdrawal Plan (SWP) could be considered in this situation. SWP mutual funds enable investors to take out fixed sums regularly which ensures steady income even during uncertain times irrespective of market fluctuations unlike traditional investment options.

The decline within mid and small cap segments caused Systematic Withdrawal Plans to become more popular because they enable investors to shield their investments from market downturns while maintaining regular withdrawals.

[Read: Decoding the Recent Market Correction: What's Behind the Fall in Mid and Small Caps]

How Does SWP in Mutual Funds Work?

An investor who selects an SWP in mutual funds, is able to withdraw a fixed amount by systematically redeeming their mutual fund investments at scheduled intervals. The process of withdrawal is executed through the sale of a specific amount of fund units which is determined by the current Net Asset Value (NAV) of the fund on the withdrawal date.

For instance, investor receives Rs 10,000 each month by redeeming 200 units from their mutual fund when the NAV stands at Rs 50. This approach helps you keep the remaining units invested to continue benefitting from the growth potential of your investment over time.

During unstable market conditions SWP provides essential support by enabling investors to secure their financial stability without the need to time their market decisions.

Taxation on SWP Mutual Funds

As you know interest income from fixed deposits is fully taxable, whereas SWP withdrawals are considered as redemption of units. This means that only the capital gains component of the withdrawal is subject to tax.

In case, the investment is in equity-oriented mutual funds and held for more than 12 months, the long-term capital gains are taxed at 12.5% above Rs 1.25 lakh, while short-term gains are taxed at 15%. Debt funds are taxed at slab rates w.e.f. 1st April 2023, irrespective of the holding period. This makes SWPs an attractive option for investors seeking a tax-efficient way to generate regular income.

Why Investors May Opt for SWP Amidst a Volatile Market

Amidst the market downturns, value of your mutual fund investments do tend to fluctuate, leading to uncertainty and panic amongst investors. SWP helps investors withdraw a fixed amount at regular intervals, regardless of the dynamic market conditions.

Moreover, SWPs play a crucial role in resisting the panic sell situation during market turbulence. In a falling market, many investors tend to react emotionally and make a hasty decision of liquidating their investments, fearing further losses. This panic sell may lead to significant financial setbacks. Thus SWP approach prevents investors from exiting at a low point, preserving their long-term wealth-building potential.

However, with a SWP in place, investors are assured of a steady income, reducing the urge to sell off investments impulsively. Since the withdrawals are systematic and planned, investors could ride out the market volatility without disrupting their financial goals. This disciplined approach helps investors stay put for the long term, potentially benefiting from market recoveries once the downturn stabilizes.

[Read: Should You Stay Invested in Mutual Funds]

In a volatile market, where predicting short-term movements is challenging, SWP offers a structured and reliable approach to managing expenses while continuing to benefit from any future market recovery.

As we move towards 2025, selecting the right SWP mutual funds becomes crucial for navigating this volatile environment.

This article explores the top-performing SWP mutual funds for 2025 and why they are a suitable investment option amidst the current market downturn, particularly for those affected by the sharp fall in mid and small-cap stocks.

We have listed the top-performing equity-oriented mutual fund schemes under various categories based on their 3-year CAGR returns. However, do note that investors may consider investing in any mutual fund scheme only as per their suitability based on risk profile, investment horizon and goals.

In today's volatile market landscape, diversified equity mutual funds across different market capitalisations and investment categories have proven to be effective in delivering significant returns while managing risk.

As you can see from the above table, funds like Motilal Oswal Midcap Fund, Nippon India Small Cap Fund and JM Flexicap Fund have shown robust growth, making them suitable for various investors utilizing SWP strategy.

• Motilal Oswal Midcap Fund has demonstrates a remarkable performance with an absolute return of 60.12% over the past year and a consistent CAGR of 22.5% and above over the past decade. Such impressive figures are indicative of its ability to generate substantial returns during both favourable and challenging market conditions. For SWP investors with a high-risk tolerance and long horizon, this fund offers the potential for significant capital appreciation while providing regular withdrawals.

• Nippon India Small Cap Fund has gained 45.81% absolute return over last year and an outstanding CAGR of 25.33% over 10-year period. Although small-cap funds are known for their highly risky nature, they also offer the potential for superior returns. Which makes this scheme ideal for investors who plan to use SWP under the small-cap category to benefit from the ability to lock in profits during periods of market growth and maintain flexibility to navigate downturns through systematic withdrawals.

Now if we consider the ongoing turbulence in mid and small-cap space, a prudent approach would be to limit your portfolio exposure and exercise caution when allocating to these funds.

• Risk-averse investors may prefer funds like Nippon India Multi Cap Fund and JM Flexicap Fund, which offer a balanced approach by spreading risk across various segments of the market. With their substantial returns, these funds are suitable for investors seeking a middle ground to maintain income while ensuring their investments have growth potential.

• For value-oriented investors, SBI Contra Fund and JM Value Fund focus on undervalued stocks with strong growth potential. The contrarian strategy enables steady returns, especially during market corrections, reducing the risk of panic selling. Additionally, HDFC Focused 30 fund and Motilal Oswal Large & Midcap Fund provide high-conviction stock portfolios. Despite higher volatility, they offer the potential for superior returns, making them suitable for SWP investors seeking concentrated growth.

In conclusion, SWP in mutual funds offers a practical solution for investors navigating the complexities of the current volatile market. By staying focused on the fundamentals and adhering to an SWP strategy, investors can navigate market volatility with confidence, ensuring they meet both short-term income needs and long-term wealth creation objectives.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.