That mutual fund SIP (systematic investment plans) has emerged as the instrument of investment of choice in India is evident from figures. AMFI (Association of Mutual Funds in India) data reveal that monthly SIP inflow topped Rs 26,000 crore mark for the first time in December 2024. In January 2024, it stood at a mere Rs 18,838 crore – thereby registering a rise of more than 40% in 12 months.
While investment advisors have for years been advising on the utility of SIPs as wealth creators, more and more of them have now started recommending a combination of SIP and SWP to meet expenditure after several years of building a solid foundation with SIPs. SWP refers to as systematic withdrawal plans and means regular withdrawal from the kitty that has been build over the years through SIP.
What is SWP
In short, SWP turns your investment that you have built painstakingly through SIP into a source of passive income. This income stream will be of use when you are perhaps without a steady source of income, or in your post-retirement years. SWP allows you to take out a fixed amount from your mutual fund kitty periodically – may be every month, quarter or year. The point to note is that you are not redeeming all your units in one go. While the mutual fund units keep growing you merely tap into a part of it. The trick is to take out an amount which is less than the amount which will be less than what the investments will generate as a return in a year. Thereby, your kitty will keep appreciating – albeit by a smaller amount – while your need for steady cash flows will be met.
Advantages of SIP-SWP combination
Investment strategists say that if a young investor adopts a strategy to combine SIP and SWP, it can lead to financial independence. Since SIPs need not be a huge amount every month, it can be tailored to the disposable income of an individual that allows him/her to build a kitty according to his/her needs/ability. If one can build a kitty of Rs 1 crore through say a period of 25 years, one can easily dip into the kitty to take out about Rs 75,000-80,000 every month. The logic goes thus: if we go by the template return of 12% annually, a corpus of Rs 1 crore can generate Rs 12 lakh a year. If a person withdraws Rs 80,000 a month, he/she will still have a surplus in the kitty of about Rs 24,000 every year, which will help the original corpus grow.
(Disclaimer: This article is only meant to provide information. News9 does not recommend buying or selling shares or subscriptions of any IPO and Mutual Funds.)
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