Monthly Income From One-time Investment: How Rs 15,00,000 one-time investment can create Rs 2,54,000 monthly income for 30 years
Monthly Income From One-time Investment: Can your one-time investment be the gateway to a 30-year regular monthly income? If one lets their one-time investment grow for a long term, they may generate an estimated monthly income of nearly Rs 2,62,000 for 30 years from a Rs 15,00,000 one-time investment.
Monthly Income From One-time Investment: For a comfortable retirement, we need a regular income. Such an income can make us financially free, where we don't have to think much about our financial well-being and where passive income will do it for us. A financial plan started early in our professional career may make it possible for us to invest a lump sum amount, let it grow for years, and draw a monthly income from it for years. The combination of a lump sum investment and systematic withdrawal plan (SWP) may make it possible for us to draw a monthly income of around Rs 2,62,000 for 30 years after investing Rs 15,00,000 in a mutual fund scheme. See calculations to know how!
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
What is mutual fund lump sum investment?
A lump sum investment in a mutual fund scheme is a one-time deposit where an investor can invest an amount and let it grow. It is unlike a periodic investment such as systematic investment plan (SIP), where the investor makes daily, weekly, monthly, etc., investments.
Is lump sum investment suitable for long term?
Many investors prefer equity mutual lump sum investments to hybrid or debt. The reason is high growth in equity funds. But a lump sum investment is not suitable for the short term, even if the market is performing well. A sharp fall can see your investment dip. So, it is advisable to make a lump sum for a long term. You will also get the power of compounding more in the long term.
Power of compounding in lump sum investment
Another reason to invest for a long time is the investor gets more years for the compound growth of their investments. Their investment can grow 10X, 25X, 50X, or more if they let it grow for a long term. See an example!
Rs 5 lakh investment growth in 10, 20, 30, 40 years
If you get a 12 per cent annualised return on a Rs 5 lakh investment, let's see what corpus you can generate in 10, 20, 30, and 40 years.
In 10 years, estimated capital gains will be Rs 10,52,924, and the estimated corpus will be Rs 15,52,924.
In 20 years, estimated capital gains will be Rs 43,23,147, and the estimated corpus will be Rs 48,23,147.
Rs 5 lakh investment growth in 10, 20, 30, 40 years
In 30 years, estimated capital gains will be Rs 1,44,79,961, and the estimated corpus will be Rs 1,49,79,961.
In 40 years, estimated capital gains will be Rs 4,60,25,485, and the estimated corpus will be Rs 4,65,25,485.
Just see the difference in the capital gains generated in 20 and 40 years; the gap is more than Rs 4 crore.
This is possible because of the power of compounding.
What is SWP in mutual funds?
Systematic Withdrawal Plan (SWP) is a way to withdraw a lump sum investment from a mutual fund periodically. An investor makes a one-time investment in a mutual fund scheme and asks the fund house to deposit a fixed amount in their account every month. The fund house sells net asset value (NAV) of the same amount every month to deposit it to the investor account. The unique part is even when the investor is withdrawing an amount every month, their investment is growing.
Why SWP may be used to withdraw retirement corpus
When one retires, in most cases, they don't require a large sum, they want to withdraw their corpus to get a regular income. In such cases, they may withdraw their amount through SWP. Since the amount stays invested for a long time, it grows, and long-term investment also saves it from small duration market or interest rate change fluctuations.
Calculations for story
For calculations, we will invest Rs 15,00,000 in an equity mutual fund scheme and withdraw it in 30 years. After paying tax on it, we will invest it in a hybrid or debt mutual fund to get an estimated monthly income of around Rs 2,62,000. So, if a person is 25 years old and invests Rs 15 lakh in a mutual fund scheme, they may let it grow till 55 years of age and withdraw an estimated monthly amount of around Rs 2,62,000 till 85 years of age.
Retirement corpus from Rs 15,00,000 one-time investment
If we get a 12 per cent annualised return from this investment, estimated capital gains in 30 years will be Rs 4,34,39,883 and the estimated corpus will be Rs 4,49,39,883.
Tax on Rs 4,49,39,883 corpus
Long term capital gain (LTCG) tax will apply on this corpus, where there is an exemption of Rs 1,25,000 on capital gains. After that, the tax rate on the gains is 12.50 per cent.
Tax on Rs 4,49,39,883 corpus
On estimated capital gains of Rs 4,34,39,883, post-exemption taxable gains will be Rs 4,33,14,883, and the estimated tax on the corpus will be Rs 54,14,360.375.
So, the estimated post-tax corpus will be Rs 3,95,25,522.625.
SWP corpus to get monthly income
Rs 3,95,25,522.625 can be used as an investment amount to start an SWP in a mutual fund. Since we are investing this amount in a debt or equity fund, we are expecting annualised growth of 7 per cent.
Monthly income from SWP corpus
The estimated monthly amount that may be generated from this corpus for 30 years will be Rs 2,61,439.
Total withdrawal in 30 years
In 30 years, the total amount withdrawn will be Rs 9,41,18,040, and the remaining balance after this withdrawal will be Rs 277.