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Monthly Income From One-time Investment: Everyone seeks a happy retirement phase where they have the financial resources to bear their own expenses. A stage where they don't have to depend on others. Such an income can be passive, which one may generate from the investment they made in their young age. The corpus can be generated from the mix of market- and non-market-linked investments. It may also be created from investment instruments such as mutual funds, provided the investor has a long-term investment horizon.
An investor may use the combination of a mutual fund lump sum investment, where they can accumulate a corpus, and a systematic withdrawal plan (SWP), which can be used to draw a monthly income for years.
Here we tell you how a Rs 4,99,999 mutual fund lump sum investment may help one generate a retirement corpus which can help them get an estimated monthly income of approximately Rs 87,215 for 30 years!
What is mutual fund lump sum investment?
Mutual funds have two types of investments – lump sum and systematic investment plan (SIP).
In a lump sum amount, an investor invests all their amount in one go.
They buy net asset value (NAV), or units, through their investment.
Since they buy all units in one go, their price and growth is similar.
How SWP works?
SWP is a method to systematically withdraw a large sum from a mutual fund.
In SWP, one can invest a lump sum amount in a mutual fund scheme and instruct the fund house to provide a fixed monthly income from the same corpus.
The fund house sells NAVs to provide that fixed income.
So, while an investor withdraws an amount every month, their investment also grows.
Calculations for story
The calculation will have 2 phases.
In the 1st phase, we will show how a Rs 4,99,999 lump sum investment in a mutual fund can create a retirement corpus in 30 years.
In the second phase, we will show how the same investor can withdraw an estimated monthly pension of approximately Rs 87,215 from the same retirement corpus.
So, if an investor is 25 years old, they may generate a corpus till 55 years of age and may withdraw an estimated monthly income of nearly Rs till 85 years of age.
Retirement corpus from Rs 4,99,999 one-time investment
If the investor gets a 12 per cent annualised growth on this investment, estimated capital gains from the investment will be Rs 1,44,79,932, and the estimated corpus will be Rs 1,49,79,931.
Tax on retirement corpus
Since we will invest this amount in a different fund for SWP, we need to pay tax on it at the time of redemption from the mutual fund scheme.
Long term capital gains (LTCG) tax will apply on these capital gains.
The investor will get a Rs 1,25,000 exemption on capital gains.
After deducting that amount, there will be 12.5 per cent tax on the rest of the capital gains.
Post-tax corpus
After a Rs 1,25,000 exemption, taxable capital gains will be Rs 1,43,54,932.
At a 12.5 per cent LTCG tax, the total estimated tax on this corpus will be Rs 17,94,366.5.
Post-tax estimated corpus, thus, will be Rs 1,31,85,564.5.
SWP investment
Rs 1,31,85,564.5 will be the estimated investment for SWP. We will invest this amount in a hybrid or a debt mutual fund, from where the expected annualised return will be 7 per cent.
Monthly income from corpus for 30 years
The estimated monthly amount that can be generated from this corpus is Rs 87,215 per month for 30 years.
Total withdrawn amount in 30 years
The total estimated amount that can be withdrawn from this corpus in 30 years is Rs 3,13,97,400. The remaining amount after withdrawing this corpus will be Rs 165.
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