Monthly Payout From One-time Investment: How Rs 16,80,000 one-time investment can generate Rs 2,93,000 lakh monthly payout for 30 years

An investment needs a long-term commitment to show steady or excellent outcomes, and it can't come without the investor being disciplined. The investment can go through a good or a poor phase, but the investor needs to hold their nerve to get the maximum output from their investment. 

If you are an investor with a limited investment budget, a long-term investment can pay rich dividends. In the long term, the power of compounding shows its magic, and the corpus grows faster. Let's see if you invest Rs 5,000 in a mutual fund SIP where the annualised return is 12 per cent, here are the corpuses you can build in 10, 20, and 30 years.

In 10 years, your estimated corpus will be Rs 11,20,179; in 20 years, it will be Rs 45,99,287; in 30 years, it will be Rs 1,54,04,866. This shows how a corpus grows with time.

The same logic applies for the retirement corpus building investment. If one invests an amount early in their career and redeems it at their retirement, the investment can grow multiple times. E.g., if a 25-year-old invests Rs 6 lakh in a mutual fund through the lump sum method and gets a 12 per cent annualised return from it, they can create an estimated corpus of Rs 3,16,79,772 by age 60.

The corpus created from a lump sum investment can be used to draw a monthly income through the systematic withdrawal plan (SWP). While it can keep the corpus safe to quite an extent from market fluctuations and rate cuts, the investor can get this income for years.

A retiree may use SWP for their corpus withdrawal. Since they may not need their entire corpus in one go. In such a case, they may use the mutual fund SWP method to withdraw it periodically. By doing so, while they will withdraw corpus from their investment, their investment will also grow. 

Retirement planning has two phases, pre-retirement and post-retirement. In the pre-retirement stage, based on the age and earning years, an investor can be aggressive in their investment strategy. They may go with a full equity investment or mix it with fixed interest options. However, when they have created a corpus, they need to be conservative with their fund and need to invest it in a hybrid or a debt fund.

Our calculation for the story will have 2 phases. In the first phase, we will show how a Rs 16,80,000 mutual fund investment can create a Rs 5,03,32,669 retirement fund at a 12 per cent annualised return in the 30-year period.  In the second phase, we will show how the same person, after paying tax on the corpus, may draw an estimated monthly income of nearly Rs 2,93,000 for the next 30 years.

So if an investor is 25 years old, they may generate an estimated corpus of Rs 5,03,32,669 by 55 years of age. From the same corpus, they may generate an estimated monthly income of nearly Rs 2,93,000 till 85 years of age.

At a 12 per cent annualised return, estimated capital gains generated from the investment will be Rs 4,86,52,669, and the estimated corpus will be Rs 5,03,32,669.

Since the investment duration is more than 12 months, long term capital gain (LTCG) tax will apply to these capital gains. The investor will get a Rs 1,25,000 exemption on estimated capital gains. Post which, the gains will be taxed at a 12.5 per cent rate. Investment – Rs 16,80,000 Estimated capital gains- Rs 4,86,52,669 Estimated corpus- Rs 5,03,32,669 Gains after Rs 1,25,000 exemption- Rs 4,85,27,669 Estimated tax on remaining gains (12.5%)- Rs 60,65,958.625 Post-tax estimated corpus- Rs 4,42,66,710.375

The estimated SWP investment amount will be Rs 4,42,66,710.375. Since the corpus is meant for retirement, we will be conservative with this corpus and will invest the amount in a conservative hybrid or a debt fund, where the expected annualised return is 7 per cent.

At a 7 per cent annualised return, one may draw an estimated monthly income of Rs 2,92,799. SWP investment amount- Rs 4,42,66,710.375 Rate of return- 7 per cent Estimated monthly pension- Rs 2,92,799 Estimated withdrawal in 30 years- Rs 10,54,07,640 Estimated balance- Rs 652