SIP+SWP: Rs 25,000 monthly SIP investment for 20 years and then Rs 1,42,000 monthly income for 45 years; know how it is possible
Retirement Planning: Investment through a Systematic Investment Plan (SIP) in mutual funds can be used to get steady returns and build a large corpus in the long run. A Systematic Withdrawal Plan (SWP) is a way to withdraw that money in phases while also getting growth on that investment.
SIP+SWP Monthly Investment and Withdrawal Plan: There is an old saying that save money for a rainy day. It holds true for investments too. When you are young and physically and mentally sound, you have energy and resources to earn money. If you invest it wisely, it can solve your problem of getting money in old age or retirement life, when your income from sources may deplete. The combination of a systematic investment plan (SIP) and a systematic withdrawal plan (SWP) is one such way, where you invest in mutual funds at a young age and withdraw it in retirement life. In this write-up, know how you can start with Rs 25,000 monthly mutual fund SIP for 20 years and withdraw Rs 1,42,000 for 45 years.
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What is SIP?
SIP is a method of investment in mutual funds where an investor can invest a fixed amount every investment cycle. SIP can be daily, monthly, quarterly, half-yearly, or yearly. Monthly SIP is the most popular among all of them.
What is SIP?
One can also increase and decrease the SIP amount as per their investment capacity. They can also opt for a step up SIP, where they can raise the amount of their SIP every year.
What is SIP?
SIP provides rupee cost averaging since an investor buys more net asset value (NAV), or units, in an equity and hybrid mutual fund when the share market is down and buys less when the share market is up.
What is SWP?
In SWP, an investor invests a lump sum amount in an equity, hybrid, or debt fund and withdraws it in phases. The selection of the fund can be as per the investor's risk appetite and financial goals. Investors who set up SWP to get monthly income often invest in debt or hybrid mutual funds.
What is SWP?
In SWP, the mutual fund house sells NAVs of a prefixed amount every month and deposits money in the investor's account.
What is SWP?
Here, the catch is that investment should deplete if one is withdrawing money from it every month. But since the fund is also growing, if the rate of growth is higher than the rate of withdrawal, one can withdraw monthly income for decades, and the fund will increase.
SIP investment conditions
For our calculations, we are taking the example of Rs 25,000 monthly SIP for 20 years and are expecting 12 per cent annualised growth on that investment.
What will be SIP returns?
At Rs 25,000 monthly SIP, the investment in 20 years will be Rs 60,00,000, the estimated long-term capital gains will be Rs 1,69,96,434, and the expected amount will be Rs 2,29,96,434.
What will be income tax on long-term capital gains?
After exemption of Rs 1,25,000 on long-term capital gains and 12.50 per cent tax on the rest of the amount, the estimated income tax will be Rs 21,08,929.25. So the post tax expected amount will be Rs 2,08,87,504.75.
SWP investment conditions
The investment amount in SWP will be Rs 2,08,87,504.75. We are expecting an 8 per cent annualised return on that.
What can be monthly income through SWP?
After investment, the estimated monthly income will be Rs 1,42,000 for 45 years.
What will be the balance after 45 years?
In 45 years, the estimated withdrawn amount will be Rs 7,66,80,000. The estimated total will be Rs 7,80,69,428.
What will be the balance after 45 years?
Even after withdrawing monthly income for 45 years, the estimated balance will be Rs 13,89,428.
Disclaimer
This is not investment advice. Calculations are projections. Please do your own due diligence or consult an advisor for retirement planning.