Monthly Payout From One-time Investment: How Rs 17,49,999 mutual fund investment can generate Rs 3,05,000 monthly income for 30 years

It is an income for which you don't work actively. You get it from your investments in the form of returns. One may also generate passive income from other income sources such as a rented property. One can focus on generating passive income for a happy retirement. If they begin their investment journey early in life, they can generate a sizeable passive income by their retirement. 

When you grow old, there are fair chances that you may not have a job or any other active income source. In such a case, passive income can fill the void, or it can be your sole source of income. The passive income from your investments can fund your retirement for years or decades. 

A person may use market-linked and non-market-linked investment options to build their retirement corpus. Market-linked investments are stocks, mutual funds, etc. An investor can make a lump sum or SIP investment in mutual funds to build a retirement corpus. In a lump sum, they invest one time and let their retirement corpus increase over the years. Their corpus, built in the long term, can be multiple times their investments.

The lump sum investment can give extraordinary results for an investor with a long-term investment horizon. See how an Rs 11 lakh one-time investment can create an Rs 3.30 crore retirement fund in 30 years. 

If one makes an Rs 11 lakh lump sum investment in a mutual fund scheme where they get a 12 per cent annualised return, in 30 years, their estimated capital gains will be Rs 3,18,55,914, and the estimated corpus will be Rs 3,29,55,914.

SWP is a method to periodically withdraw your retirement corpus from your mutual fund one-time investment. In SWP, you invest a lump sum amount in a mutual fund scheme and direct the fund house to provide you a fixed monthly income for your expenses. The benefit of using SWP can be that while you are withdrawing the amount, your corpus will grow. 

If you invest Rs 90 lakh in a hybrid or a debt mutual fund, where your expected return is 7 per cent, you can withdraw an estimated monthly income of Rs 59,000 for 30 years. Your total withdrawn amount in 30 years will be Rs 2,12,40,000, while the estimated balance will be Rs 6,50,315.

Our calculation will be in 2 phases. In the first phase, we will show how an individual can generate an estimated corpus worth Rs 5,24,29,834 at a 12 per cent annualised return in 30 years from their equity 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 Rs 3,04,995 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 3.15 crore by 55 years of age. From the same corpus, they may withdraw an estimated monthly income of over Rs 3,04,995 till 85 years of age.

At a 12 per cent annualised return, estimated capital gains an investor can have in 30 years will be Rs 5,06,79,835, while the estimated corpus generated will be Rs 5,24,29,834. 

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. According to that rule, after a Rs 1,250,000 exemption, the taxable capital gains will be Rs 5,05,54,835. At a 12.5 per cent rate, the estimated tax will be Rs 63,19,354.375, while the post-tax estimated corpus will be Rs 4,61,10,479.625.

Rs 4,61,10,479.625 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.

The estimated monthly income that can be generated from this corpus for 30 years will be Rs 3,04,995.

One-time investment- Rs 17,49,999 Investment period: 30 years Expected annualised return- 12 per cent After 30 years of investment  Estimated capital gains- Rs 5,06,79,835 Estimated retirement corpus- Rs 5,24,29,834

LTCG tax exemption- Rs 1,25,000 Taxable capital gains- Rs  5,06,79,835- Rs 1,25,000= Rs 5,05,54,835 LTCG tax rate- 12.5 per cent Estimated tax (LTCG)- Rs 63,19,354.375 Post-tax corpus for SWP investment- Rs 5,24,29,834- Rs 63,19,354.375= Rs 4,61,10,479.625

Estimated monthly income for 30 years- Rs 304,995 Total withdrawn amount in 30 years- Rs 10,97,98,200 Balance- Rs 41