Monthly Income From One-time Investment: How your Rs 18,99,999 mutual fund investment can generate over Rs 3,31,000/month for 30 years

Mutual fund investment for retirement planning

Mutual fund lump sum investment in equity funds for retirement planning is suitable for investors with a long-term horizon. The long-term investment most likely mitigates risk to quite a large extent. The power of compounding helps grow investments faster with time. 

How you may create retirement fund from lump sum investment

As we said, a long-term investment horizon may do wonders. If one invests an amount in their early or mid-20s and lets it grow to use as a retirement corpus in their early or late 50s, they may create a huge corpus.
E.g., if a 25-year-old invests Rs 10 lakh in a mutual fund where their investment growth rate is 12 per cent, they can create a Rs 3 crore corpus by the time they turn 55 years old.

 

Power of compounding plays a role

Starting an investment 5 years earlier can give extraordinary results in the long term because of the power of compounding. Let's understand it with an example. 
See the difference in the corpus generated from a Rs 5 lakh investment when an investor starts an investment at 25 years of age and 30 years of age to withdraw it at 60 years of age after 12 per cent annualised growth.
If they start it at 25, they will get 35 years of compounding, and the corpus will grow to an estimated Rs 2,63,99,810.
But if they start at 30, they will get 30 years of compounding, and the estimated corpus will be Rs 1,49,79,961.

Investment returns matter a lot

Another important factor is to keep revising your investment strategy to get the maximum return. It will help you achieve your retirement goal earlier, or you may generate a larger corpus if you investment period is fixed.
Take the example of a Rs 7 lakh investment and see the estimated corpus you can generate in 30 years at a 12 per cent and 14 per cent annualised return.
At a 12 per cent return in 30 years, estimated capital gains will be Rs 2,02,71,945, and the estimated corpus will be Rs 2,09,71,945.
But if the annualised return is 14 per cent, estimated capital gains will be Rs 3,49,65,111, while the estimated corpus will be Rs 3,56,65,111.
You can see that a 2 per cent extra return can change the game completely. 

SWP in mutual funds

Another important factor is to keep revising your investment strategy to get the maximum return. It will help you achieve your retirement goal earlier, or you may generate a larger corpus if your investment period is fixed.
Take the example of a Rs 7 lakh investment and see the estimated corpus you can generate in 30 years at a 12 per cent and 14 per cent annualised return.
At a 12 per cent return in 30 years, estimated capital gains will be Rs 2,02,71,945, and the estimated corpus will be Rs 2,09,71,945.
But if the annualised return is 14 per cent, estimated capital gains will be Rs 3,49,65,111, while the estimated corpus will be Rs 3,56,65,111.
You can see that a 2 per cent extra return can change the game completely. 

 

Example of SWP

Suppose you invest Rs 75 lakh as a lump sum in a debt mutual fund from where you want to withdraw Rs 49,600 a month at a 7 per cent annualised growth rate; you can withdraw that amount for 30 years.

Calculations for story

Our calculation will be in 2 phases. In the first phase, we will show how an Rs 18,99,999 one-time investment can generate an estimated corpus worth Rs 5,69,23,822 at a 12 per cent annualised return in 30 years from their mutual fund lump sum investment.
In the second phase, we will show how, by investing the same amount in a mutual fund and starting an SWP, one may withdraw an estimated monthly income of over Rs 3,31,000 for 30 years.
In that way, if a person makes this investment at 25 years of age, they can create an estimated corpus of Rs 5,69,23,822 by 55 years of age. From the same corpus, they may withdraw an estimated monthly income of over Rs 3,31,000 till 85 years of age.

 

Retirement corpus from Rs 18,99,999 one-time investment

In 30 years, estimated capital gains will be Rs 5,50,23,823, while the estimated corpus will be Rs 5,69,23,822.

Income tax on Rs 5,69,23,822 corpus

The tax on this corpus will be long term capital gain tax (LTCG). As per existing tax rules, one gets an exemption of Rs 1,25,000 on LTCG. After that, the tax rate is 12.5 per cent. As per the LTCG tax rule, after a Rs 1,250,000 exemption, the taxable capital gains will be Rs 5,48,98,823. At a 12.5 per cent annualised rate, the estimated tax will be Rs 68,62,352.875, while the post-tax estimated corpus will be Rs 5,00,61,469.125.

SWP investment

Rs 5,00,61,469.125 will be the estimated amount to be invested in a mutual fund scheme and start an SWP. We will invest it in a hybrid conservative or debt fund to get a 7 per cent annualised return. 

Monthly income from SWP corpus

The estimated monthly income that can be generated from this corpus for 30 years will be over Rs 3,31,000.

Calculation summary

One-time investment- Rs 17,99,999
Investment period: 30 years
Expected annualised return- 12 per cent
After 30 years of investment 
Estimated capital gains- Rs 5,50,23,823
Estimated retirement corpus- Rs 5,69,23,822

 

Tax calculation

LTCG tax exemption- Rs 1,25,000
Taxable capital gains- Rs 5,50,23,823- Rs 1,25,000= Rs 5,48,98,823
LTCG tax rate- 12.5 per cent
Estimated tax (LTCG)- Rs 68,62,352.875
Post-tax corpus for SWP investment- Rs 5,69,23,822- Rs 68,62,352.875= Rs 5,00,61,469.125

SWP calculation for monthly income

Estimated monthly income for 30 years- Rs 3,31,128
Total withdrawn amount in 30 years- Rs 11,92,06,080
Balance- Rs 760