Monthly Income From One-time Investment: Do you want to see your Rs 8 lakh investment grow to a level that can enable you to get an estimated monthly income of nearly Rs 1,39,500 till 85 years of age? Such an outstanding output from a small beginning may be quite a possibility if you take the benefit of the power of compounding to a good level.
All you require is patience, smart planning and making the most of long duration.
Then you may use the combination of a mutual fund lump sum investment and a systematic withdrawal plan (SWP) to draw a healthy income of over from a one-time investment.
In this write-up, we will tell you how your Rs 8,00,000 one-time investment today may generate an estimated Rs 1,39,500 monthly income for 30 years in the long run.
Mutual fund lump sum investment for corpus building
Mutual funds invest in equity, debt, multi assets, etc. Since they diversify their investments, investors often use them for their retirement planning.
When people have a substantial amount that they want to invest, they may use the mutual fund lump sum investment method.
However, it is necessary to give the investment sufficient time to grow if you want to create a corpus through a lump sum investment.
In the long run, it may convert a small investment into a large corpus.
SWP for retirement corpus withdrawal
Once you create a corpus, you may need to withdraw it once the retirement phase starts.
But there are fair chances that you may need this amount in phases.
For such a reason, a systematic withdrawal plan (SWP) may be used. SWP allows periodic withdrawals from a mutual fund investment.
The investor can ask the fund house to provide them a fixed monthly income every month.
The house sells investment units from the investment to deliver the regular income.
What we will calculate
Our calculation will have 2 phases. In the first phase, we will show how, at 12 per cent annualised growth, a mutual fund investor can generate an estimated corpus of Rs 2,39,67,938 in 30 years from a Rs 8,00,000 mutual fund one-time investment.
In the second phase, we will show how, after paying tax on capital gains and investing the remaining amount in another mutual fund scheme, one may withdraw an estimated monthly income of Rs 1,39,480 for 30 years through SWP.
In that way, if a person makes this investment at 25 years of age, they may generate an estimated corpus of Rs 2,39,67,938 by 55 years of age.
After paying long term capital gain tax (LTCG) and investing the remaining amount in a hybrid or debt fund, they may withdraw an estimated monthly income of Rs 1,39,480 till 85 years of age.
Retirement corpus in 30 years from Rs 8,00,000 investment
At a 12 per cent annualised return, estimated capital gains an investor can have in 30 years will be Rs 2,31,67,938, while the estimated retirement corpus generated will be Rs 2,39,67,938.
Tax on Rs 2,39,67,938 retirement corpus
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.
After a Rs 1,250,000 exemption, the taxable capital gains will be Rs 2,30,42938. At a 12.5 per cent rate, the estimated tax will be Rs 28,80,367.25, while the post-tax estimated corpus will be Rs 2,10,87,570.75.
SWP investment for monthly income
Rs 2,10,87,570.75 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
Monthly income from SWP corpus
The estimated monthly income that can be generated from this corpus for 30 years will be Rs 1,39,480.
Calculation summary
One-time investment- Rs 8,00,000
Investment period: 30 years
Expected annualised return- 12 per cent
After 30 years of investment
Estimated capital gains- Rs 2,31,67,938
Estimated retirement corpus- Rs 2,39,67,938
Tax calculation
LTCG tax exemption- Rs 1,25,000
Taxable capital gains- Rs 2,31,67,938- Rs 1,25,000= Rs 2,30,42,938
LTCG tax rate- 12.5 per cent
Estimated tax (LTCG)- Rs 28,80,367.25
Post-tax corpus for SWP investment- Rs 2,39,67,938-Rs 28,80,367.25= Rs 2,10,87,570.75
SWP calculation for monthly income
Estimated monthly income for 30 years- Rs 1,39,480
Total withdrawn amount in 30 years- Rs 5,02,12,800
Balance- Rs 3,051
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
