SIP+SWP: Rs 15,000 monthly SIP investment for 20 years and Rs 100,000 monthly income for 45 years; know how it is possible
Retirement Planning: The combination of systematic investment plan (SIP) and the systematic withdrawal plan (SWP) can be used to get monthly income. The idea is to invest Rs 15,000 for 20 years, get 14 per cent annualised return on that and then withdraw Rs 100,000 monthly income for at least 45 years.
SIP+SWP Combo: Making investment in your young days for the retirement age can be the best practice to achieve or maintain financial freedom in your old age. One needs to start investing early and do it consistently for a long term to get monthly income for a longer period in retirement life. There can be many market-linked and non-market-linked programmes to achieve that goal. The combination of a systematic investment plan (SIP) and a systematic withdrawal plan (SWP) can be one of them. The idea is to invest Rs 15,000 for 20 years and then get Rs 100,000 in monthly income for at least 45 years. In this write-up, know more about SIP and SWP and how calculations can work to get Rs 100,000 monthly income for decades.
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(Disclaimer: This is not investment advice. Calculations are projections. Please do your own due diligence or consult an advisor for retirement planning.)
What is SIP?
It is a method to invest in a mutual fund scheme, equity, hybrid, or debt, where one invests a fixed amount every investment cycle. When they invest through SIP, the fund house issues them net asset value (NAV) units from that amount.
What is SIP?
The fund house invests investor money in a number of stocks or debt assets. As investment assets grow, the rate of NAV increases, and the value of investment also grows. Hence, the investor purchases a different number of NAVs every month from their fixed amount investment.
What is SIP?
Due to this feature in SIP, an investor doesn't need to time market. They get rupee-cost averaging, and because of that, their investment is more likely to grow in the long run. In SIP, one can increase or decrease the investment amount.
What is SWP?
Its opposite of SIP. Here, you make a lump sum investment in a mutual fund scheme(s) and withdraw that amount in phases. Since, you also get growth on your money, the withdrawn amount can be much larger than the invested amount.
What is SWP?
In a SWP scheme, the mutual fund house issues you NAVs after the lump sum payment. You tell it in advance your monthly withdrawal amount. The fund house sells NAVs equal to that amount every month to provide you with the monthly income.
What is SWP?
Senior citizens, who are open to market-linked investment, often use SWP as an investment tool to get a monthly income.
SIP investment conditions
Here, you need to start a Rs 20,000 monthly SIP in a mutual fund(s) scheme, where you can get 14 per cent annualised return for 20 years.
SIP investment conditions
In 20 years, the investment will be Rs 36,00,000, long term capital gains will be Rs 1,40,02,112, and the expected amount will be Rs 1,76,02,112.
What will be income tax on long-term capital gains?
Since we can't predict the future long term capital gains tax rate, in our projections, we are calculating based on the current rate of 12.50 per cent.
After tax exemption of Rs 1,25,000, the taxable income on Rs 1,40,02,112 long term capital gains will be Rs 1,38,77,112.
What will be income tax on long-term capital gains?
At 12.50 per cent tax rate, the tax on this income will be Rs 17,34,639.
So, the post tax income will be Rs 1,22,67,473.
What you need to do now
You need to make SWP on this amount in a mutual fund, where you can get 10 per cent annualised return.
What you need to do now
On a 10 per cent return, the investment of Rs 1,22,67,473 can easily give Rs 100,000 in monthly income for 45 years.
What will be the balance after 45 years?
Even after withdrawing Rs 100,000 monthly pension, or Rs 5,40,00,000 in 45 years, the remaining balance will be Rs 2,68,96,939.