Passive income, often referred to as “money working for you,” is a financial goal that many aspire to achieve. It involves generating income streams that require minimal effort and time, allowing individuals to enjoy financial freedom and pursue their dreams. One of the most effective ways to generate passive income is through investments. In this article, we’ll explore one of the investment options and strategies that can help you create a steady stream of passive income.

Passive income is the earnings you receive regularly with little or no active involvement. Unlike active income, which requires constant time and effort (such as a traditional 9-to-5 job), passive income sources allow you to make money even while you sleep. Investments are a key vehicle for generating passive income, and they come in various forms like stock dividends, rental from real estate, annuities, bonds, etc.

In this article, we are going to see how a Systematic Withdrawal Plan (SWP) in a mutual fund can be a good source of passive income.

What is SWP?

In a mutual fund Systematic Withdrawal Plan (SWP), you can draw a fixed amount from your mutual fund investment(s) every month or at any other frequency (specified by the investor); you can specify the amount to be drawn, and the day of the month when the withdrawal should be made. The amount will be credited directly to your bank account on the specified day. You can continue your SWP as long as there are balance units in your mutual fund scheme account.

How does SWP work?

Once initiated, SWP in a mutual fund scheme generates cash flows for investors by redeeming units at specified intervals. The number of units redeemed hinges on the SWP amount and the scheme’s Net Asset Values (NAV) on withdrawal dates. Let’s illustrate how SWP transforms investments into cash flows through a real-life example.

Imagine you invested Rs 50 lakhs (as a lump sum) in HDFC Balanced Advantage Fund (Growth) on August 1, 2013, for a 10-year period. Starting from September 1, 2013, you withdrew Rs 30,000 (around 7% of the invested corpus) every month as part of a systematic withdrawal plan. By the end of 10 years, you would have withdrawn Rs 36 lakhs, and the valuation of the remaining units in the fund on August 1, 2023, would be Rs 1.62 crores, boasting an impressive annualized return of 17.53%. (Detailed monthly cash flow breakdown can be seen here)

Disclaimer: The HDFC Balanced Advantage scheme(growth) is taken for demonstration purposes only and it’s not a
recommendation of any kind. The data shown here is actual.

Advantages of SWP.

The benefits of SWP are manifold, making it a valuable tool for those seeking to bolster their passive income.

  • Regular Passive Income: SWP enables you to generate a steady stream of passive income, complementing your monthly earnings. This feature proves invaluable, especially for retirees needing additional funds for routine expenses or to meet financial obligations, such as EMIs.
  • Customizable Withdrawals: You have the autonomy to decide the withdrawal amount, aligning it with your specific financial requirements and goals.
  • Dual Benefits: SWP not only provides a consistent passive income but also nurtures the growth of your invested corpus. As demonstrated in my example, the annualized returns can be remarkably substantial, enhancing your financial well-being.


  • In conclusion, the Systematic Withdrawal Plan (SWP) emerges as a potent tool for generating regular cash flows. Additionally, it is capable of augmenting your monthly income. Moreover, it not only offers financial security but also the potential for significant growth in your investment portfolio. Furthermore, while my example focused on the HDFC Balanced Advantage scheme (growth) for illustrative purposes, it is crucial to conduct thorough research. Additionally, seek professional advice when considering specific mutual funds for your SWP strategy.
  • Remember, SWP can be your key to financial freedom, where your money truly starts working for you.

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