Which business in the world gives you income without doing anything? Most so-called passive income ideas still demand regular attention, effort, or monitoring. Whether it’s running a YouTube channel, rental management, or affiliate marketing, you usually need to stay active—even if it’s from home. However, long term investing offers a truly hands-off way to make monthly passive income by Mutual funds. Once the initial setup is done, it can continue working for you—without your daily involvement.
There are essentially two ways to build wealth:
- Make others work for you.
- Make your money work for you.
If you prefer a hassle-free life, the second option—investing your money—is the smarter path.
Table of Contents
The 4-Step Process to Make Passive Income by Mutual Funds
- Choose the Right Mutual Fund
Opt for a strategy-based index fund. This topic is already covered in detail in our blog post:
Long-Term Investing Strategy That Works – Recover from Loss and Grow Wealth - Accumulate Wealth Through SIPs
Begin investing through a monthly SIP (say Rs X/month). Avoid lump sum investments or fixed-term strategies like 3-year plans. The idea is to build wealth consistently. - Grow Your Wealth
You have two choices once your initial accumulation phase is over:
Option A: Invest through SIP for 3 years and then stop.
Option B: Continue the SIP for an additional 2 years (total of 5 years).
- Set Up a Systematic Withdrawal Plan (SWP)
Once your investment matures, set up an SWP to withdraw Rs X/month directly to your bank account. This gives you monthly passive income for a lifetime.
The flowchart below illustrates this process:
Case Study: Option A – SIP for 3 Years to make passive income by Mutual funds
Let’s consider an example.
A person want to make passive income by Mutual Funds. The person starts a monthly SIP of Rs 10,000 in Nifty Midcap 150 Momentum 50 from April 2005 to March 2008 (just before the Global Financial Crisis).
He stops investing after 3 years and waits for the next 3 years (till March 2011).
From April 2011, he starts withdrawing Rs 10,000/month via SWP until March 2025.
Results :
According to the chart above, not only was he able to withdraw Rs 10,000/month for 14 years, but by March 2025, a corpus of Rs 3,65,594 still remained.
Case Study: Option B – SIP for 5 Years to make passive income by Mutual Funds
Now another person’s Goal is to make passive income by Mutual Funds. Now he invests the same Rs 10,000/month SIP from April 2005 to March 2010—a total of 5 years. He then starts withdrawing Rs 10,000/month from April 2010 to March 2025.
Results
The chart shows that he receives the same monthly passive income, but his remaining corpus by March 2025 is Rs 55,04,141.
Conclusion: What’s the Better Path to Monthly Passive Income?
To make monthly passive income by Mutual Funds, both options work—but the second option (5-year SIP) is significantly better. Not only does it provide the same income, but it also preserves and grows your wealth over time.
If you want your money to work harder, go the extra mile by investing consistently for 5 years before withdrawing. This small extension can make a big difference in your long-term financial freedom.
Frequently Asked Questions (FAQ)
Q1. Can mutual funds really provide passive income?
Yes. By investing through SIPs and later setting up a Systematic Withdrawal Plan (SWP), you can receive monthly income directly in your bank account without daily involvement.
Q2. Which is better for passive income: 3-year SIP or 5-year SIP?
Both work, but a 5-year SIP is better. It provides the same monthly income while preserving and growing your wealth significantly more than the 3-year SIP option.
Q3. Do I need to monitor my mutual fund investments daily for passive income?
No. Once you choose the right fund and set up your SIP and SWP, the process is largely hands-off. Periodic review is enough.
📖 Further Reading:
Explore more on this topic in our Mutual Fund Advanced guide.
How to make Rs1 Crore using Mutual Funds
Learn how to make Rs1 crore using mutual funds. Compare options like SIPs in index, midcap, and strategy funds with ROI & time needed.
Read More →Disclaimer:
“This article is for educational purposes only. Read our full disclaimer .”
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