When it comes to financial planning, Systematic Withdrawal Plans (SWP) in mutual funds offer an innovative way to generate regular income from your investments without disturbing your principal capital. SWP is ideal for those who have accumulated a lump sum of money and want to utilize it effectively for periodic payouts, be it for household expenses, loan EMIs, or other financial goals.
What is SWP?
An SWP allows you to withdraw a fixed amount of money at regular intervals (monthly, quarterly, or annually) from your mutual fund investments. It’s a reverse of SIP (Systematic Investment Plan), where instead of investing, you withdraw. The best part? You continue to earn returns on the remaining investment, ensuring that your funds grow while fulfilling your financial needs.
Example: Funding a Car Loan through SWP
Let’s take a practical example to understand how SWP can help you manage a car loan without impacting your regular income.
- Car Price: ₹25,00,000
- Down Payment: ₹5,00,000
- Loan Amount: ₹20,00,000
- Rate of Interest on Car Loan: 9%
- EMI: ₹30,000 (rounded off)
- Lump Sum Investment in Mutual Fund: ₹20,00,000
- Expected CAGR of Mutual Fund: 20%
- SWP Payout: ₹30,000 per month
- Loan Tenure: 7 years
How It Works:
- You make a down payment of ₹5,00,000 and take a car loan of ₹20,00,000 with an EMI of ₹30,000 for 7 years at an approximate ROI of 9%.
- Simultaneously, you invest ₹20,00,000 in a mutual fund offering an expected return of 20% CAGR.
- You set up an SWP to withdraw ₹30,000 monthly to pay the car loan EMI.
- Over 7 years, you withdraw ₹30,000 x 12 months x 7 years = ₹25,20,000 from the mutual fund.
- Despite the withdrawals, your remaining investment grows at 20% CAGR.
Outcome After 7 Years:
- Total Amount Withdrawn via SWP: ₹25,20,000
- Car Loan Fully Paid: Yes
- Portfolio Value Remaining in Mutual Fund: ₹21,04,434
What Does This Mean?
- You effectively paid for a ₹25,00,000 car without using your regular income for EMIs.
- After 7 years, not only is your car loan completely repaid, but you also still have ₹21,04,434 left in your mutual fund investment.
- Your financial burden is reduced, and the compounding effect of your mutual fund investment ensures you still preserve wealth.
Why SWP is a Smart Choice?
- No Financial Burden: SWP ensures you don’t dip into your salary or savings to fund large expenses.
- Compounding Growth: The remaining corpus in your mutual fund continues to grow even as you withdraw periodically.
- Tax Efficiency: Compared to fixed deposits or other income sources, SWP offers better tax advantages.
- Convenience: Set it and forget it—no need to manually manage your withdrawals or cash flow.
Conclusion
A Systematic Withdrawal Plan (SWP) is not just a financial tool but a strategy to achieve your goals efficiently. Whether you want to fund a car, pay EMIs, or manage household expenses, SWP lets you meet your needs while keeping your wealth intact
Take the first step towards financial independence. Contact Munafawaala today to explore SWP options and achieve your dreams seamlessly! 😊
