SIP+SWP: Rs 20,000 monthly SIP for 16 years to get Rs 99,000 monthly income for 42 years; know how it may work out?
SIP+SWP investment for retirement: Through SIP, one can invest a predetermined amount every month in a mutual fund scheme. This investment helps them get net asset value (NAV) units of that scheme. Here, instead of building a large corpus by investing a monthly amount in a mutual fund scheme, one invests a lump sum amount. The investor instructs the mutual fund house to sell their NAVs whose worth is equal to the predetermined amount that the investor needs as the monthly income.
SIP+SWP, Retirement Planning: Financial freedom means having a source of passive income where you don't have to depend on your daily wages to run your expenses. It is about getting returns from your lump sum investments, having rental income, or getting monthly income from your investments. A mutual fund systematic withdrawal plan (SWP) is one such method, where you make a one-time investment and get monthly income in the form of return. The good part about it is you can get a monthly income for decades if your rate of withdrawal is lower than the rate of growth. But many of us don't have a large lump sum amount to invest. For that, the solution can be to invest through a systematic investment plan (SIP) at your young age and withdraw the monthly amount once you get old or when your sources of income deplete. The combo of SIP and SWP may help you get Rs 99,000 monthly income for decades if you start your investment journey from Rs 20,000 monthly SIP. Know how it can be done.
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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.)
How does SIP work?
SIP is a method to invest in a mutual fund scheme. Through SIP, one can invest a predetermined amount every month. This investment helps them get net asset value (NAV) units of that scheme. The rate of NAVs changes with the rise and fall of the stock market.
How does SIP work?
An investor purchases NAVs at different rates every month. This type of investment provides rupee cost averaging, due to which, an investor doesn't need to time market. In the long run, the rupee cost averaging factor can help one get good returns.
How does SIP work?
So, the longer an investor stays in their SIP investment, the higher are their chances of building a large retirement corpus.
How does SWP work?
Here, instead of building a large corpus by investing a monthly amount in a mutual fund scheme, one invests a lump sum amount. The investor instructs the mutual fund house to sell NAVs every month, whose worth is equal to the predetermined amount that the investor needs as the monthly income.
How does SWP work?
When the market is rising and the NAV rate is high, the mutual fund house sells a fewer number of units. On the other hand, when the market is performing poorly and the rate of NAV is low, the mutual fund house sells more NAVs to give the investor the monthly amount.
How does SWP work?
If the growth rate of the fund is higher than the withdrawal rate, one can withdraw the monthly amount for decades.
How SIP and SWP combo works
Since we need a large amount to set up SWP in a mutual fund, the first thing is to build this corpus. One can do so by investing through SIP in a mutual fund and getting good growth over it.
How SIP and SWP combo works
The average growth that one can get in equity mutual funds is 12 per cent, but if they prepare their mutual fund strategy wisely, they can also get 15 per cent annualised SIP returns in the long run.
Expected corpus amount with Rs 20,000 monthly SIP investment
Here one needs to invest Rs 20,000 in a monthly SIP for 16 years and find a way to get 15 per cent annualised return from their investments.
Expected corpus amount with Rs 20,000 monthly SIP investment
With that rate of growth, in 16 years, the invested amount will be Rs 38,40,000, estimated long-term capital gains will be Rs 1,05,95,492, and the total estimated amount will be Rs 1,44,35,492.
How to get Rs 99,000 monthly income for 42 years
If you invest Rs 1,44,35,492 in a mutual fund(s) scheme and get an 8 per cent return on that investment, you can get an estimated Rs 99,999 monthly income for 42 years.
What if you get 9% return on your investment?
If you get a 9 per cent annualised return on the investment, you can get an estimated Rs 1,10,000 monthly income for 42 years.