SIP+SWP: Rs 17,000 monthly SIP investment for 20 years and then Rs 97,000 monthly income for 44 years; know how it is possible
Monthly Income Through SIP+SWP: Mutual fund SIP is an effective investment tool to create a sizeable retirement corpus in the long run. Systematic Withdrawal Plan (SWP) can be used to withdraw that money in phases while also getting growth on that investment.
SIP+SWP, monthly income, monthly pension: For most people who depend on monthly salary paycheques, saving money and investing in a scheme where they can build a sizeable retirement corpus can be a tough task. But investing should be a habit, which must be followed irrespective of one's monthly income. Even a small investment done for a long duration can help an individual create a corpus that can serve their retirement corpus purpose. One can create it through the systematic investment plan (SIP) in mutual funds and then withdraw the same money for years through the systematic withdrawal plan (SWP). In this write-up, we will tell how one can create a fund over Rs 1.55 crore with Rs 17,000 monthly SIP or 20 years and then get Rs 97,000 monthly income from the same investment for 44 years.
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How SIP works
An investor can invest in a mutual fund scheme through SIP, where they invest a fixed amount every investment cycle. They can increase or decrease the investment amount as per their investment capacity. They can stop SIP, or they can opt for a step up SIP, where they can increase the SIP investment percentage every year.
How SIP works
When one invests in SIP, they purchase net asset value (NAV) units. The rate of NAV changes every investment cycle as per the market performance or the performance of the assets where the mutual fund scheme has its investments. Since the NAV rate keeps changing, investors don't need to time market.
How SIP works
They will get benefits when the NAV price rises, and they will suffer losses when its price falls. However, in the long run, they are most likely to get benefit through SIP investment because of the fluctuation of the NAV price.
How SWP works
SWP is just opposite to SIP. Unlike in SIP, where an investor makes systematic investment, in SWP, they make a lump investment in a mutual fund scheme and withdraw it in phases to get monthly income. When they withdraw it, they also get growth on this investment.
How SWP works
So, despite withdrawing a much larger amount than the invested amount, they may still have balance in their fund. When an investor invests in SWP, the mutual fund house issues NAVs of the same amount.
How SWP works
The investor asks the fund house to provide a fixed monthly income. The fund house sells the investor's NAVs every month to provide them the monthly income.
SIP returns
For our calculation, we will show Rs 17,000 monthly SIP investment for 20 years. The annualised rate of return on this investment will be 12 per cent. This type of return is possible in SIP investment.
What will be SIP corpus?
At Rs 17,000 monthly SIP investment for 20 years, the total investment will be Rs 40,80,000, the estimated long term capital gains will be Rs 1,15,57,575, and the estimated expected amount will be Rs 1,56,37,575.
What will be income tax on this corpus?
After Rs 1,25,000 exemption on long-term capital gains, the total income tax on this corpus will be Rs 14,29,071.875.
What will be expected amount after paying tax?
The post tax expected amount will be Rs 1,42,0,8503.125. This amount will be used to invest in a mutual fund(s) and set up a SWP.
What will be return on SWP investment?
It will depend on the type of mutual fund (equity, hybrid, or debt) one has invested their money in. But we are following a conservative approach here and so picking a conservative hybrid mutual fund for investment, where the equity exposure is minimum. We expect an 8 per cent annualised return on this investment.
What will be monthly income?
If one gets an 8 per cent annualised return on a Rs 1,42,0,8503.125 investment, they can get Rs 97,000 in monthly income for 44 years.
Disclaimer
(Calculations given in this article are not investment advice. Do your own due diligence or consult an advisor for retirement planning.)