SIP+SWP: Rs 21,000 monthly SIP investment for 20 years and then Rs 1,20,000 monthly income for 43 years; know it can be possible

It is a method to invest in a mutual fund where one deposits a fixed amount every investment cycle, which can be daily, weekly, monthly, or yearly. When you invest that money, the mutual fund house issues you net asset value (NAV) units of the same amount. 

The performance of this unit depends on the assets that the scheme has invested its money in. The rate of NAV increases or decreases every month. So, when the price of the NAV is high, you buy fewer units; when its price is low, you buy more. 

This process is known as rupee-cost averaging. Due to it, one doesn't need to time market. SIP is a popular tool to create wealth in the long run.

In SIP, you build a corpus, and through SWP, you withdraw that money in phases. Here, you invest a lump sum amount in a mutual fund scheme. The fund house issues you NAVs. You tell them to credit a certain amount to your account every month. 

The fund house sells NAVs in the same proportion every month to give you that amount. The rupee cost averaging works here also. When the price of the NAV is high, the fund house sells fewer NAVs, and when the market is low, it sells more.

Mutual fund investors use this method to get monthly income. Senior citizens also use it to get a monthly pension post retirement. Since one invests in a mutual fund scheme, their money also grows with time. So, if the rate of the withdrawal is lower than the growth of the fund, one can withdraw monthly income for decades, and still they may have more in their fund than their principal amount.

Here, we will calculate for Rs 21,000 monthly SIP investment for 20 years. The annualised rate of growth will be 12 per cent.  

At Rs 21,000 monthly SIP investment, the investment in 20 years will be Rs 50,40,000, the estimated long-term capital gains will be Rs 1,42,77,004, and the expected amount will be Rs 1,93,17,004.

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 17,69,000.5. So the post tax expected amount will be Rs 1,75,48,003.5. This is the amount that one can invest in a mutual fund scheme where they want to set up a SWP plan.

We are expecting an 8 per cent annualised return on the invested amount of 1,75,48,003.5. 

After that investment, one can get a monthly income of Rs 1,20,000 for an estimated 43 years.

In 43 years, the estimated withdrawn amount will be Rs 6,19,20,000. The estimated total will be Rs 6,24,03,658. 
Even after withdrawing monthly income for 43 years, the estimated balance will be Rs 4,83,658.

It depends on returns, if instead of 8%, one gets 9% return on 1,75,48,003.5, they can Rs 1,33,400 for an estimated 43 years.