How to Potentially Generate ₹50,000 Per Month Passive Income from Mutual Funds Using SWP

Realise that SWP of ₹50,000 per month is not “free income”. Instead, it is a planned withdrawal from your corpus, the sustainability of which primarily depends on:

• The size of your corpus
• Expected return
• Volatility
• Tax treatment, and
• How long do you need the income to last
   

Usually, the first step is to build a sufficiently large corpus through disciplined investing, such as via SIPs or lump-sum investments. Once the desired corpus has been accumulated, you can start an SWP by specifying the monthly withdrawal amount. 

The mutual fund then redeems the required number of units at the prevailing NAV to provide the payout, while the remaining units continue to stay invested.

Generally, the monthly amount that can be withdrawn “sustainably” largely depends on the withdrawal rate. It is the percentage of your total investment corpus that is withdrawn every year through an SWP.

For example,

Suppose withdrawing ₹6 lakh annually from a corpus of ₹1.20 crore means the withdrawal rate is 5% (₹6,00,000/₹1,20,00,000  x 100).

As per general industry understanding, a lower withdrawal rate may potentially improve the chances of the corpus lasting longer. In contrast, a higher withdrawal rate increases the risk of exhausting the corpus comparatively faster (particularly if investment returns are lower than expected).

Let’s see the approximate corpus required to potentially generate an SWP of ₹50,000 per month (₹6 lakh per year) at different annual withdrawal rates:

Observation? You can understand that a corpus of ₹1 crore may potentially support a monthly withdrawal of ₹50,000 if the annual withdrawal rate is around 6%. Whereas a corpus of around ₹1.2 crore provides the same monthly income at a 5% withdrawal rate, while ₹1.5 crore reduces the withdrawal rate to 4%.

It is important to remember that these figures are only broad illustrations and not guarantees. If the portfolio delivers lower returns for an extended period or withdrawals are too high, the corpus may deplete sooner than expected. 

Note that choosing the “right” mutual fund is just as important as deciding the withdrawal amount. Many investors consider debt funds or conservative hybrid funds for SWPs because they are generally less volatile than pure equity funds. 

Lower volatility may reduce the impact of sharp market fluctuations on the investment corpus during the withdrawal phase. However, returns are not guaranteed, and these funds remain subject to market risks. 

Having said that, an SWP may also be started potentially from equity-oriented mutual funds (particularly when the investment horizon is long). However, realise that equity schemes experience greater market fluctuations. If markets decline significantly during the initial years of withdrawals, more units may have to be redeemed to generate the same monthly payout. 

This can reduce the remaining investment corpus more quickly and negatively influence the long-term sustainability of the SWP. For this reason, some investors choose to split their investments where:

• A portion of the retirement corpus may be invested in debt-oriented or liquid funds to meet near-term withdrawal requirements

and

• The remaining amount stays invested in a diversified growth-oriented equity portfolio to seek potential long-term capital appreciation and help manage the impact of inflation

Note that the appropriate allocation depends on an investor's financial goals, investment horizon, and risk tolerance.

So, now you know how to get ₹50,000 per month from mutual funds. This is possible through a Systematic Withdrawal Plan (SWP), a facility that allows investors to withdraw a fixed amount from their mutual fund investments at regular intervals while the remaining corpus continues to stay invested.

The corpus required to generate ₹50,000 per month depends primarily on your decided “withdrawal rate”. As per general market understanding, a higher withdrawal rate places greater pressure on the investment corpus and may cause it to deplete sooner, while a lower withdrawal rate may improve its sustainability over a longer period. 

As a broad illustration, the required corpus works out to around ₹1.5 crore at a 4% withdrawal rate, ₹1.2 crore at 5%, and ₹1 crore at 6%. Once the desired corpus has been accumulated, an SWP can be started by choosing the withdrawal amount and frequency, such as ₹50,000 every month.

For more information, you can visit www.tatamutualfund.com/deshkarenivesh. The Investor Service Centre of Tata Asset Management Pvt. Ltd. is located at Mulla House, Ground Floor, 51, M.G. Road, Near Flora Fountain, Mumbai – 400 001, Maharashtra. The office hours are Monday to Friday, 9:00 AM to 5:30 PM. For assistance, you can also call (022) 6282 7777 from Monday to Saturday, 9:00 AM to 5:30 PM, or email service@tataamc.com

1. How to retire with a mutual fund monthly income of ₹50,000?

Firstly, you may accumulate your target corpus and then opt for a Systematic Withdrawal Plan (SWP). The monthly income depends on several factors, such as:

• The corpus size
• Withdrawal rate
• Fund performance
• Applicable taxes, and 
• How long are the withdrawals expected to continue
   

2. How much money do I need to invest to receive ₹50,000 per month?

The corpus required to generate an SWP of ₹50,000 per month depends on the annual withdrawal rate. As a broad illustration, it is around:

• ₹1.5 crore at a 4% withdrawal rate
• ₹1.2 crore at 5%, and 
• ₹1 crore at 6%

Note that these are only estimates and may vary based on investment returns and other factors.
 

3. Will my investment continue to grow after I start an SWP of ₹50,000 per month?

Yes, as per general industry understanding, only the units required to generate the chosen withdrawal amount are redeemed. The remaining units stay invested in the mutual fund and may continue to participate in market movements.