Monthly Capital Gains from One-time Investment: Achieving a large output from a small investment can be a dream for many of us. But if we use the investment duration to good effect, the output can be much more than you think. A one-time investment of Rs 3,99,999 may be a reason to get an estimated monthly income of over Rs 67,000 for 30 years.
However, one needs to be patient and see their investment grow over the years before taking their benefit.
Here we will tell you how it may be possible through the mutual fund lump sum investment and systematic withdrawal plan (SWP).
Mutual fund lump sum investment to create corpus
Time and the power of compounding can convert your small linked or non-market-linked investment into a large corpus.
It can turn your deposits of a few lakhs into many crores. You just need to be patient during market fluctuations and let your investment grow.
You can benefit more if you start your investment journey for the retirement corpus building early in your career.
Starting it in the mid-20s or early 30s can pay rich dividends.
SWP for retirement planning
SWP is a method to withdraw amounts periodically from a mutual fund investment.
The process is often used for withdrawing the retirement corpus.
In SWP, an investor invests an amount in a mutual fund and instructs the fund house to sell net asset value (NAVs) of a fixed amount and deposit it to the investor account.
Calculations for story
We will do our calculation in 2 phases. In the first phase, we will show how an investor can generate an estimated corpus of Rs 1,19,83,939 from a one-time investment of Rs 3,99,999 at a 12 per cent annualised return in the 30-year time frame.
In the second phase, we will show how the same person, after paying tax on the corpus, may draw an estimated monthly income of over Rs 67,000 for the next 30 years.
So if an investor is 25 years old, they may create an estimated corpus of Rs 1,19,83,939 by 55 years of age.
From the same corpus, they may generate an estimated monthly income of over Rs 67,000 till 85 years of age.
Retirement corpus from Rs 3,99,999 investment in 30 years
At a 12 per cent annualised return, estimated capital gains generated from the investment will be Rs 1,15,83,940, and the estimated corpus will be Rs 1,19,83,939.
Income tax on corpus
Since the investment duration is more than 12 months, long term capital gain (LTCG) tax will apply to these capital gains. The investor will get a Rs 1,25,000 exemption on estimated capital gains. Post which, the gains will be taxed at a 12.5 per cent rate.
Investment – Rs 3,99,999
Estimated capital gains- Rs 1,15,83,940
Estimated corpus- Rs 1,19,83,939
Gains after Rs 1,25,000 exemption- Rs 1,14,58,940
Estimated tax on remaining gains (12.5%)- Rs 14,32,367.5
Post-tax estimated corpus- Rs 1,01,51.572.5
SWP investment for monthly pension
The estimated SWP investment amount will be Rs 1,01,51.572.5. Since the corpus is meant for retirement, we will be conservative with our corpus and will invest this amount in a conservative hybrid or a debt fund, where our annualised return will be 7 per cent.
Monthly income from SWP investment
At a 7 per cent annualised return, one may draw an estimated monthly income of Rs 67,146.
SWP investment amount- Rs 1,01,51.572.5
Rate of return- 7 per cent
Estimated monthly pension- Rs 67,146
Estimated withdrawal in 30 years- Rs 2,41,72,560
Estimated balance- Rs 1,195
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)