SWP For ₹50,000 Monthly Income || SWP Plan in Mutual Fund Explained

Introduction

Many people are curious about how to earn a monthly income through a Systematic Withdrawal Plan (SWP) in mutual funds. In this article, we'll break down what SWP is, demonstrate how it works using a simple analogy, discuss its benefits, and suggest some of the best mutual funds for implementing an SWP strategy.

Understanding SWP: The Magical Piggy Bank Analogy

Let’s visualize SWP as a magical piggy bank. Imagine you deposit money inside this piggy bank — every time you add cash, the total amount slightly increases. For instance, if you deposit ₹1,000, your magical piggy bank might increase it to ₹1,100 almost instantly.

Now, suppose over a span of 10 years, you continuously add money, totaling ₹1 lakh. By the end of that period, due to the magic of compounding, the total in your piggy bank might grow to ₹5 lakh. Instead of using the entire ₹5 lakh at once, you can choose to withdraw ₹5,000 monthly for the next 15 years.

This process of systematic withdrawal — continually taking out a fixed amount while letting the remaining corpus still grow — exemplifies what SWP is all about.

How the SWP Works in Real Life

Let’s consider a practical example of how SWP operates using a fictional Balance Advantage Fund. Assume you accumulated a total of ₹50 lakhs over a period of 10 years and now have 50,000 units, with each unit priced at ₹100 (NAV).

If you decide to withdraw ₹30,000 every month, your transactions happen automatically through your mutual fund provider.

First Month: After withdrawing ₹30,000, the NAV rises from ₹100 to ₹102. You'll be left with approximately 49,294 units.
Second Month: If the NAV increases again to ₹105, you withdraw ₹30,000 by redeeming around 286 units, leaving you with about 48,946 units.

Even after making monthly withdrawals, if the NAV continues to rise, the value of your total investment can still appreciate.

For example, at the end of one year:

Initial amount: ₹50 lakh.
Monthly withdrawals of ₹30,000.
End amount after one year: ₹53.1 lakh.

Isn’t it incredible? You can create a steady income stream while allowing your investments to grow!

The Importance of Creating a Corpus

To benefit from SWP, it’s crucial to have a sizable investment corpus. If you're starting from scratch, consider using a Systematic Investment Plan (SIP) to build up your corpus over time.

For instance, if you aim to withdraw ₹50,000 monthly after 20 years (let’s assume no inflation for simplification), you'll need to invest around ₹10,000 every month into a mutual fund. By doing this, after 20 years, your corpus will ideally be around ₹1 crore, which can facilitate the monthly SWP.

Setting Up SWP

Setting up an SWP is generally straightforward. Major mutual fund apps often provide you with an option to initiate SWP. You typically would not need to fill out complex forms; a few selections on your app will suffice.

When starting your SWP, just keep in mind that any withdrawals will have tax implications, such as Long Term Capital Gains Tax (LTCG), as you start profiting from your investments.

Recommended Mutual Funds for SWP

While there are many options, specific funds have proven to be effective when implementing an SWP strategy. We’ve shared detailed recommendations in dedicated videos discussing the best mutual funds for SWP. It's advisable to check the exact funds that fit your financial goals.

Keywords

SWP
Monthly Income
Systematic Withdrawal Plan
Mutual Funds
SIP
Investment Corpus
NAV (Net Asset Value)
Long Term Capital Gains Tax (LTCG)

FAQ

What is an SWP?
A Systematic Withdrawal Plan (SWP) is an investment strategy allowing investors to withdraw a fixed amount of money from their mutual fund investments at regular intervals.

How does SWP work?
SWP allows investors to withdraw a predetermined sum periodically from their mutual fund account, while the remaining amount continues to grow.

How can I set up an SWP?
You can easily set up an SWP through your mutual fund's online platform or app – usually requiring just a few clicks.

What are the benefits of SWP?
SWP provides a steady income stream while allowing the invested corpus to continue appreciating over time, making it an excellent tool for financial planning.

Do I have to fill any forms for SWP?
Most modern mutual fund apps simplify the process, not requiring extensive paperwork – just a few choices will typically get you started.

What funds are best for SWP?
There are several mutual funds suitable for SWP; it’s recommended to research and consult dedicated resources for personalized advice.