Monthly Income From One-time Investment: How Rs 14,00,000 one-time investment can generate Rs 2,44,000 monthly income for 30 years
Monthly Income From One-time Investment: A mutual fund lump sum (one-time) investment may be a source to get a monthly income for decades if one uses its combination with systematic withdrawal plan (SWP). A Rs 14,00,000 one-time investment may lead to a monthly income of over Rs 2,44,000 in the long term. Know how this combination may work-
Monthly Income From One-time Investment: A monthly income at retirement may make your life comfortable. It can give you financial freedom, which is hard to achieve for most people. Such a regular flow of income may help you achieve your financial goals post retirement and may also help you bear your monthly expenses. One may get it from a mutual fund lump sum (one-time) investment, where it may be generated phase-wise. In the first stage, an individual can build a corpus from a one-time investment. While in the second stage, the corpus built can be withdrawn through a systematic withdrawal plan (SWP) in a mutual fund scheme. By using this method, one may receive an estimated monthly income of over Rs 2,44,000 for 30 years after a one-time investment of Rs 14,00,000. Know how it may be possible-
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
Why monthly income is required post retirement
When a person retires, their expenses don't stop. They may decrease, or they may increase in some cases, but they need a regular income to meet their expenses. To meet those, it is necessary to have a source of income from which one may withdraw an amount every month.
What can be income sources for retiree?
They may have a rented property. They have a business, or they may have a pension plan or investment from where they can generate a regular income. Such an income is required for life.
What can be investment sources for retirees?
They may invest in fixed interest assets such as fixed deposits, corporate and government bonds, or market-linked assets such as stocks and mutual funds. The purpose should be to build a corpus from these investments, which can work as a regular passive income source post retirement.
Inflation and tax for retirement corpus
When we build our retirement corpus, we need to know that it should beat inflation. Since taxation policies keep changing, one should keep revising their retirement planning strategy.
Retirement corpus building through one-time investment
One may build their retirement corpus through long-term mutual fund investment. They may pick a mix of equity, hybrid, and debt portfolios to mitigate market risk. A long term is required since compound growth of their investment can help them build a large corpus from a small amount.
Retirement corpus building through one-time investment
E.g., if one invests Rs 10 lakh for 30 years and gets a 12 per cent annualised return from their investments, estimated capital gains from it will be Rs 2,89,59,922, and the estimated corpus will be Rs 2,99,59,922.
Retirement corpus building through monthly SIP investment
Most people have a monthly earning cycle, so it may be suitable for them to make a monthly SIP investment. However, in this case also, a long-term investment horizon can help them build a large corpus.
Let's take the example of a Rs 10,000 monthly SIP investment for 30 and 35 years at a 12 per cent annualised return.
Retirement corpus building through monthly SIP investment
In 30 years, the total investment will be Rs 36,00,000, estimated capital gains will be Rs 2,72,09,732 and the estimated corpus will be Rs 3,08,09,732.
In 35 years, the total investment will be Rs 42,00,000, estimated capital gains will be Rs 5,09,08,311 and the estimated corpus will be Rs 5,51,08,311.
Such a phenomenal change in just 5 years happens because of the power of compounding.
Calculations for story
Our calculation will have 2 stages. In the first phase, we will calculate the retirement corpus built from a Rs 14,00,000 one-time investment in 30 years at a 12 per cent annualised return. In the second stage, we will show how one may get over Rs 2,44,00/month income for 30 years from the post-tax corpus. So, if an investor invests Rs 14,00,000 lump sum in a mutual fund scheme and lets it grow till they turn 55, they may generate an estimated monthly income of over Rs 2,44,000 till they turn 85.
Retirement corpus from Rs 14,00,000 one-time investment
In 30 years, at a 12 per cent annualised return, estimated capital gains will be Rs 4,05,43,891, and the estimated corpus will be Rs 4,19,43,891.
Income tax on retirement corpus
Long-term capital gain (LTCG) tax will apply on this retirement corpus. The corpus will have a tax exemption of Rs 1,250,000. On the rest of the corpus, LTCG tax applicable will be 12.5 per cent.
After the Rs 1,25,000 exemption, the taxable income will be Rs 4,04,18,891.
The estimated income tax on this corpus will be Rs 50,52,361.375, and the estimated post-tax corpus will be Rs 3,68,91,529.625.
SWP corpus calculations
Rs 3,68,91,529.625 will be the estimated SWP corpus. We will invest this corpus in a conservative hybrid or a debt fund, from where we are expecting an annualised return of 7 per cent. We will be conservative with this investment since this is meant for retirement, and we need to take a minimum risk on the amount.
What will be monthly income for 30 years?
The estimated monthly income that one may generate from this corpus for 30 years will be Rs 2,44,016.
What will be total amount withdrawn in 30 years?
In 30 years, the total withdrawn corpus will be Rs 8,78,45,760, while the balance will be Rs 1,025.