From Rs 17.50 Lakh Investment Today to Rs 3.05 Lakh/Month for 30 Years: How long-term mutual fund investment can secure your retirement

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From Rs 17.50 Lakh Today to Rs 3 Lakh Month for 30 Years: When you are old, or when you seek an early retirement, all that you want is a peaceful and comfortable life. One can have such a life if they have a regular passive or active income source at retirement. Such an income may also come through a mutual fund lump sum (one-time investment) or periodic investment.

In a lump sum investment, one may invest an amount and let it grow for a long time.

The years of compounding can take this corpus to a large amount.

From the same corpus, they can withdraw a monthly amount for years.

In this write-up, we will tell how one may create an estimated corpus of Rs 5,24,29,834 from a mutual fund lump sum investment of Rs 17,49,99.

And how, from the same corpus, they may generate an estimated monthly income of around Rs 3,05,000 for 30 years through the systematic withdrawal plan (SWP).

Lump sum investment for retirement corpus building

If an investor makes a lump sum investment early in their life and lets this amount grow for a long term, they can generate a large corpus from the same amount.

Let's say an investor has Rs 9,00,000 to invest in a mutual fund where their expected growth is 12 per cent, their estimated corpus created in 20 and 30 years will be as follows.

In 20 years, estimated capital will be Rs 77,81,664, and the estimated corpus will be Rs 86,81,664.

In 30 years, estimated capital gains will be Rs 2,60,63,930, and the estimated corpus will be Rs 2,69,63,930.

SWP for retirement planning

A lot of investors use SWP to withdraw their retirement corpus periodically.

It provides them with rupee cost averaging and saves their corpus from market fluctuations to a great extent if the withdrawal is spread over years.

Calculations for story

Our calculation will have 2 phases.

In the first phase, we will show how a Rs 17,49,999 one-time investment in a mutual fund can create an estimated corpus of Rs 5,24,29,834 at a 12 per cent annualised return in 30 years.

In the second phase, we will show how, by investing the same amount in a mutual fund and starting an SWP, one may withdraw an estimated monthly income of Rs 3,05,000 for the next 30 years.

So, if an investor makes this investment at 25 years of age, they can create an estimated corpus of around Rs 5.25 crore by 55 years of age.

From the same corpus, they may withdraw an estimated monthly income of Rs 3,05,000 till 85 years of age.

Retirement corpus in 30 years from Rs 17,49,999 investment

At a 12 per cent annualised return, estimated capital gains in 30 years will be Rs 5,06,79,835, while the estimated corpus generated will be Rs 5,24,29,834.

Tax on Rs 5,24,29,834 retirement corpus

Long term capital gain tax (LTCG) will apply on this corpus. 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.

According to that rule, after a Rs 1,250,000 exemption, the taxable capital gains will be Rs 5,05,54,835.

At a 12.5 per cent rate, the estimated tax will be Rs 63,19,355, while the post-tax estimated corpus will be Rs 4,61,10,479.

SWP investment

The estimated SWP investment will be Rs 4,61,10,479.

We will invest it in a hybrid conservative or debt fund to get a 7 per cent annualised return.

We will be conservative with this amount since the corpus is meant for retirement.

Monthly income from SWP corpus

The estimated monthly income that can be generated from this corpus for 30 years will be Rs 3,04,995.

Calculation summary

One-time investment- Rs 17,49,999
Investment period: 30 years
Expected annualised return- 12 per cent
After 30 years of investment
Estimated capital gains- Rs 5,06,79,835
Estimated retirement corpus- Rs 5,24,29,834

Tax calculation

LTCG tax exemption- Rs 1,25,000
Taxable capital gains- Rs 5,06,79,835- Rs 1,25,000= Rs 5,05,54,835
LTCG tax rate- 12.5 per cent
Estimated tax (LTCG)- Rs 63,19,355
Post-tax corpus for SWP investment- Rs 5,24,29,834- Rs 63,19,355= Rs 4,61,10,479