How to Earn ₹1 Crore Through SWP: A Deep Dive
Investing can be intimidating, especially when it comes to managing the returns and creating a steady income stream. But there’s a solution that allows you to systematically withdraw funds from your investments while still growing your wealth: SWP (Systematic Withdrawal Plan). This guide will break down how SWP works, its benefits, and how you can use it to potentially grow ₹30,000 monthly investments into ₹1 crore, all while receiving a steady monthly income.
What is SWP?
Systematic Withdrawal Plan (SWP) is a method through which you can withdraw a fixed amount from your mutual fund investments at regular intervals—be it monthly, quarterly, or yearly. Unlike redeeming all your units in one go, SWP allows you to withdraw only a portion of your total investment. The rest remains invested, allowing it to keep growing and compounding.
For instance, if you invest ₹30,000 monthly through a SIP (Systematic Investment Plan) into a mutual fund, your returns grow over time due to the compounding effect. In an SWP, you withdraw a set amount periodically, leaving the remainder to continue growing in the market.
How Does SWP Work?
Let’s use a simple example to explain how SWP functions. Suppose Narinder, aged 24, begins investing ₹30,000 per month in an equity mutual fund with an assumed annual return of 15%. He invests this amount through SIP for 8 years, and then lets it stay invested for another 2 years, meaning he stays invested for a total of 10 years. By the time he was 32, his investment would have grown significantly.
After 10 years, Narinder starts an SWP, withdrawing ₹3,000 per month. Despite these withdrawals, the remaining invested amount continues to grow at an assumed return of 13% annually. At the end of 30 years, not only has Narinder received regular income from his SWP, but the corpus has also continued growing, potentially reaching more than ₹1 crore.
Key Features and Benefits of SWP
- Regular Income: SWP provides a stable income source, making it ideal for retirees or those looking for supplementary income without liquidating their entire investment.
- Flexible Withdrawals: You can choose the amount and frequency of your withdrawals. Whether it’s ₹5,000 a month or ₹50,000 quarterly, the plan adjusts to your needs.
- Continued Investment Growth: Even though you’re withdrawing a portion of your investment regularly, the remaining amount stays invested, earning returns and benefiting from the power of compounding.
- Convenience: Setting up an SWP is simple and can be done online. Once it’s set, the fund house automatically deposits the withdrawal amount into your bank account at the chosen intervals.
SWP vs SIP vs FD: What’s the Difference?
Many investors get confused between these three investment plans, but each serves a different purpose:
- SWP (Systematic Withdrawal Plan): Primarily designed to provide a steady income stream. While you’re withdrawing money, the rest of your funds remain invested and continue to earn returns.
- SIP (Systematic Investment Plan): The goal of SIP is to grow your wealth by making regular investments in mutual funds. It’s best suited for long-term wealth creation with the potential for compounding growth.
- FD (Fixed Deposit): A low-risk investment that offers fixed returns. However, the returns are generally lower compared to SWP or SIP, and breaking the FD early may lead to penalties.
| Feature | SWP | SIP | FD |
|---|---|---|---|
| Purpose | Steady income generation | Wealth creation | Safe, fixed returns |
| Returns | Market-linked, variable | Market-linked, variable | Fixed, predetermined |
| Liquidity | High liquidity | High liquidity | Medium (penalty on premature withdrawal) |
| Taxation | Capital gains tax (short-term, long-term) | Capital gains tax (short-term, long-term) | Taxed on interest earned |
Taxation of SWP
Like all investments, SWP is subject to taxation. Here’s a quick overview of how SWP withdrawals are taxed:
- Equity Mutual Funds: If you withdraw within 1 year, a 15% short-term capital gains tax applies. If you hold the investment for more than 1 year, long-term capital gains (LTCG) tax of 10% applies, but only for gains exceeding ₹1 lakh.
- Debt Mutual Funds: For withdrawals within 3 years, the gains are taxed according to your income tax slab. If held for more than 3 years, a 20% tax with indexation is applicable.
Is SWP Right for You?
If you’re looking for a way to maintain liquidity, receive a regular income, and still grow your wealth, SWP can be an excellent choice. It’s particularly beneficial for retirees, freelancers, or anyone looking to supplement their income without touching the bulk of their investment.
Conclusion
SWP allows you to generate regular income while keeping the rest of your investment working for you in the market. The combination of flexibility, growth potential, and regular cash flow makes it an attractive option, especially for those planning for long-term financial goals.
Whether you are building wealth or planning for a steady income during retirement, an SWP can be an integral part of your financial strategy. The key lies in selecting the right mutual fund, staying disciplined with your withdrawals, and letting compounding work its magic. With a smart approach, you can even achieve the goal of crossing ₹1 crore in your investment portfolio while enjoying the benefits of a regular income.
This guide should provide clarity on SWP and how you can leverage it to grow your wealth while maintaining financial stability. Let us know if you would consider starting an SWP, and feel free to drop any questions or comments below!