New Delhi, July 1 -- A Systematic Withdrawal Plan (SWP) allows investors to withdraw a fixed amount at pre-decided intervals, such as monthly, quarterly or annually, while keeping the remaining corpus invested. However, the tax treatment of SWP depends on the portion of each withdrawal that represents capital gains, as well as the type of mutual fund.

Let's take a closer look at how SWP withdrawals are taxed.

For tax purposes, each SWP payout is considered a partial redemption of mutual fund units. This means every withdrawal comprises two components, the return of the original investment (principal) and the appreciation earned on those units (capital gains).

The principal portion is not taxable because it represents the investor's own...