Investors are always looking for reliable sources of passive income. While rental income has long been popular, Systematic Withdrawal Plans (SWPs) in mutual funds are rapidly becoming a preferred alternative. SWPs offer a structured way to withdraw a fixed sum regularly while keeping your invested corpus intact and growing. Compared to rental income, SWPs provide greater flexibility, tax efficiency, and fewer financial and operational burdens.
This article explores why SWPs are emerging as a smarter, more efficient way to generate passive income compared to rental properties.
Why SWP is the smarter choice for passive cash flow
- Consistent cash flow
SWP provides a regular income stream that investors can customise to meet their specific financial needs. SWP offers scheduled, consistent payments.On the other hand, rental income can fluctuate based on tenant occupancy and current market conditions.
- Flexibility
SWP provides more flexibility for withdrawal amounts and frequencies. It is possible for investors to vary the frequency and amount of withdrawal according to their financial requirements, whether they require funds monthly, quarterly, or yearly. This flexibility enables investors to tailor their plans based on their unique financial needs and lifestyle.
- No maintenance of management costs
Once you invest in mutual funds, there are no maintenance costs.You don’t need to deal with tenants, property repairs, or paperwork.Asset management fees are minimal compared to real estate maintenance costs. Hence, SWPs, compared to rental income require no ongoing efforts or extra costs.
- Higher ROI potential
A well-diversified mutual fund portfolio can generate 8-12% annual returns, and investors can withdraw a smaller percentage (e.g., 6-7%) to maintain and grow their corpus.Compounding ensures that the remaining invested amount continues to generate returns.
Rental yields in India typically range between 2-4% per year, significantly lower than mutual fund returns.Property value appreciation is uncertain and varies by market conditions.The real ROI is often much lower when adjusted for inflation, maintenance, and transaction costs.
- Exit strategy
Investors can modify, pause, or stop their withdrawals at any time.Switching between funds is also easier than selling a property. On the other hand, exiting a real estate investment involves legal formalities, brokerage fees, and market risks.Converting real estate into liquid cash can take months.
How to select an ideal SWP
These are the factors that investors should take into account when selecting an SWP:
- Investment horizon: Investors should always align the SWP with their financial objectives and timeline.
- Risk tolerance: They must select funds that match their risk tolerance.
- Expense ratio: Checking for lower expense ratios is important as it is directly proportional to more returns.
- Fund performance: Investors should go through the past performance and management track record to be definite in their choices.
Conclusion
While real estate has traditionally been seen as a stable source of passive income, it comes with multiple financial and operational burdens. SWPs offer a more flexibleand higher-yielding alternative without the hassles of property management.
For investors looking for a low-maintenance, predictable, and scalable passive income stream, SWP outperforms rental income in almost every key aspect. Instead of tying up capital in illiquid real estate, investors can leverage SWPs for a more efficient and sustainable cash flow strategy.
If you’re looking for stress-free passive income, SWPs might be the smarter choice for you!
