Monthly Income by One-time Investment: How Rs 9,50,000 lump sum deposit can generate Rs 1,66,000/month for 30 years?
Monthly Income from One-time Investment: Everyone may have a dream of seeing their investments multiplying by many times and making them richer. While such miracles may not be possible overnight, such extraordinary results may be found in the long-term investment. Even a one-time investment of Rs 12,75,000 may generate a monthly income of approximately Rs 1,66,000 for 30 years! Know how it may be possible.
Monthly income from one-time investment: Do you have a dream of seeing your investments multiply by 50 times or 100 times? Such miracles may happen in a dream overnight, or just in a few minutes or seconds in the subconscious mind during your sleep. But in the investment world, these are more of a fantasy in the short term and more of a reality in the long term. But can an investment grow by 100 times? In fact, much more than that, if one is patient and the business where they have invested is increasing exponentially. Are such kinds of returns possible in mutual funds? Yes! Even more than that! Many mutual fund schemes have turned a Rs 5,000 monthly SIP investment into multiple crores since their inception. Likewise, a Rs 9,50,000 one-time investment can grow to a level where one may draw a monthly income of nearly Rs 1,66,000 for 30 years. Know how it may be possible through a mutual fund lump sum and systematic withdrawal plan (SWP).
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(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
Examples of how investments have multiplied in mutual funds
Let's take the example of Nippon India Growth Fund, which started in October 1995.
It has given a 22.23 per cent annualised return since its inception.
Had someone invested Rs 1 lakh at its launch, their current corpus is estimated to be over Rs 3.76 crore.
Example of SIP investment turning into many times
Take the example of another fund- Franklin India Prima Fund - Regular Plan.
It has given 20.34 per cent annualise SIP return since its inception in December 1993.
The fund has converted a Rs 1,000 monthly SIP investment into Rs 2.03 crore since its inception.
One-time investment growth at 12 per cent return
Now such kinds of returns are not possible in every equity fund.
So, we are taking the example of an average 12 per cent annualised return in a mutual fund scheme.
Let's see how a Rs 2 lakh investment in 30 years and a Rs 20 lakh investment in 9 years can grow in them in years.
One-time investment growth at 12 per cent return
In 30 years, a Rs 2 lakh investment can grow to an estimated corpus of Rs 59,91,984.
In 9 years, a Rs 20 lakh investment will grow to an estimated corpus of Rs 55,46,158.
This shows how a small investment can grow to a larger corpus in the long term compared to a larger investment in the short term.
Such changes happen because of the power of compounding.
SIP investment growth at 12 per cent return
Now see the same phenomenon in the SIP investment.
Here, we are taking the example of a Rs 3,000 monthly SIP investment for 40 years versus a Rs 20,000 monthly SIP investment for 20 years. The annualised return in each case will be 12 per cent.
SIP investment growth at 12 per cent return
At a Rs 2,000 monthly SIP investment, the total investment in 40 years will be Rs 9,60,000, estimated capital gains will be Rs 1,86,26,142 and the estimated corpus will be Rs 1,95,86,142.
At a Rs 20,000 monthly SIP investment, the total investment in 20 years will be Rs 48,00,000, estimated capital gains will be Rs 1,35,97,147 and the estimated corpus will be Rs 1,83,97,147.
Just look at the investment and the estimated corpus created in each case.
Power of long-term investment
The above two examples highlight the power of long-term investment, where the duration of the investment matters more than the total investment.
So, if an investor plans their retirement early in their career and starts investing a small amount regularly or one time, they may generate a sizeable corpus from that amount.
However, ideally, one should increase their investment amount as their income increases.
One-time investment for retirement planning
Here, if one begins to start investing early, they can create a large corpus from a smaller amount.
Let's see if one wants to create a Rs 5 crore retirement corpus in 35 years from a one-time investment, where they expect a 12 per cent growth. Know how much the estimated amount they need to invest.
They can achieve that corpus with an estimated amount of Rs 9,50,000.
But if they start their journey 5 years late, they need an estimated investment of Rs 16,70,000.
SWP for retirement planning
If one wants to withdraw their retirement corpus for monthly income, they may start an SWP from their mutual fund investment.
The fund house sells net asset value (NAV) units from the investor's corpus of the same monthly amount as requested by them and deposits the amount to the investor's account. The corpus is saved from short-term market or interest rate changes and also grows with time.
Calculations for story
Our calculations will have 2 phases. In the 1st phase, we will invest Rs 9,50,000 lump sum in a mutual fund scheme and let it grow for 30 years. In the second phase, we will invest the corpus created in another mutual fund scheme and start an SWP to draw a monthly income for 30 years. So, if a 25-year-old starts a one-time investment and lets it grow till they turn 55, they may draw a monthly income till they are 85 years old.
Retirement corpus from Rs 9,50,000 one-time investment in 30 years
In 30 years, the lump sum investment will grow to an estimated retirement corpus of Rs 2,84,61,926, where estimated capital gains will be Rs 2,75,11,926.
Tax on retirement corpus
On this corpus, long term capital gain (LTCG) tax will apply since the investment duration is more than 12 months.
The investor will get an exemption of Rs 1,25,000 on this corpus, and after that, a 12.5 per cent tax will be applied.
The taxable income will be Rs 2,73,86,926, and the estimated tax will be Rs 34,23,365.75.
Post-tax estimated corpus will be Rs 2,50,38,560.25.
SWP corpus
The investment amount for SWP will be Rs 2,50,38,560.25. We will invest this amount in a conservative or a debt mutual fund where we expect an annualised growth of 7 per cent. The reason why we want to be conservative for this investment is because it is meant for retirement, and we want to take a minimum risk on it.
Monthly income from SWP corpus
We are expecting monthly income for 30 years from this corpus.
The estimated monthly income that we may generate from this corpus will be Rs 1,65,615.
Total income withdrawn in 30 years
At a 7 per cent annualised growth rate, the total income withdrawn from this amount will be Rs 5,96,21,400, and the estimated balance after withdrawing it will be Rs 1,315.