When you transfer funds out of an equity or debt fund it will be treated as a sale and taxed accordingly.
before three years will be principal + short-term capital gains (STCG) and in that STCG will be taxed as per your slab rate.
Alternatively, any sale after three years will have principal + long-term capital gains (LTCG) and LTCG part will attract tax at 20% after indexation.
SWPs are normally done on debt funds or hybrid funds as they are more predictable compared to equity funds. In case of debt funds, it is LTCG only if held for more than three years. In case of SWP, each withdrawal will be treated as a mix of principal and capital gains withdrawal and only the capital gains portion will be taxed. That makes an SWP a lot more tax efficient.
Example – Suppose, you invested ₹6 Lakhs in Reliance Short Term Fund on 1st Apr, 2015 and started SWP of Rs. 10,000/month from it immediately from 10th Apr, 2015. So, this is how your taxation (Assuming you are in 30% tax bracket) will be –