Systematic Investment Plan (SIP) can help one build a sizeable retirement corpus with the help of constant investing in the long term. Though systematic withdrawal (SWP), one can withdraw that money in phases to secure monthly income.
Systematic Investment Plan (SIP):
- What is SIP? SIP is a disciplined investment approach where you invest a fixed amount regularly (usually monthly) in mutual funds. It allows you to benefit from rupee cost averaging and compounding over the long term.
- How does it work? You choose a mutual fund scheme and invest a fixed amount (as low as ₹500) at regular intervals. The fund manager allocates your money to various assets (stocks, bonds, etc.).
- Benefits of SIP:
- Discipline: SIP encourages regular investing, helping you stay committed to your financial goals.
- Rupee Cost Averaging: You buy more units when prices are low and fewer units when prices are high, averaging out the cost.
- Power of Compounding: Over time, your investments grow exponentially due to compounding.
- Flexibility: You can start, stop, or modify SIPs as per your convenience.
- Taxation: SIPs are taxed based on the type of mutual fund (equity or debt) and the holding period.
Systematic Withdrawal Plan (SWP):
- What is SWP? SWP allows you to withdraw a fixed amount regularly from your mutual fund investment. It’s like creating your own pension or income stream.
- How does it work? You specify the withdrawal frequency (monthly, quarterly, or annually) and the amount you want to withdraw. The fund manager sells units to fulfill your withdrawal request.
- Benefits of SWP:
- Regular Income: SWP provides a steady income, making it useful for retirees or anyone needing periodic cash flow.
- Tax Efficiency: SWP withdrawals are considered Long-Term Capital Gains (LTCG) and taxed accordingly (10-30%).
- Flexibility: You can adjust the withdrawal amount as needed.
- Drawbacks: Exit loads (fees for early withdrawal) and potential market volatility.
- Who can benefit? Not just retirees—SWP can help meet various financial needs (child’s education, EMIs, etc.).
SIP+SWP: SIP investment in a mutual fund can be an effective way to build a large retirement corpus in the long term. If picks mutual fund keeping in mind growth in the long term, reshuffle non-performing mutual funds on a constant basis, their investment can grow at a pace of 12 percent annually or above. On the other hand, if they don’t want to withdraw that amount in one go and want it in phases, they can start a systematic withdrawal plan (SWP), where they can get monthly income in the form of principal amount and return. In this write-up, know how Rs 15,000 monthly SIP can help one build over a Rs 1 crore corpus in 16 years, and after that, how they can withdraw Rs 70,000 monthly income from that for decades.
Disclaimer:
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Our calculations are projections and are not investment advice. Do your own due diligence or consult an expert before investing.
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What is SIP?
SIP is a method of investing in mutual funds. It allows you to invest in a mutual fund scheme at a regular interval. You can choose a yearly, monthly, or daily SIP to invest in. You don’t need a large amount to invest through SIP. It starts with Rs 100, and most mutual funds have Rs 500 as the minimum SIP investment. Even if you invest a small amount for a long period of 15 years and above, the SIP investment can help you generate good returns. SIP works on the rupee cost averaging concept. The price of net asset value (NAV), the basic unit of a mutual fund scheme, keeps changing with the ups and downs of the market. So, you purchase NAV at different rates in different investment periods. It can help beat market volatility in the long run and maximize investments.
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What is SWP?
It is opposite to SIP. Here, instead of investing at a prefixed interval, you withdraw money. The only difference is that you invest a lump sum amount in a mutual fund scheme to start SWP. The idea is you get growth on your investment, plus there is already the principal amount. So, one gets the mix of both in the form of a fixed income amount. If your rate of growth is higher than your rate of withdrawal, not only the SWP plan can help you get regular income, but also the value of your fund will grow. SWP is also based on rupee cost averaging basis. Here, the mutual fund house sells your NAV every withdrawal period. So, if the market is high and the cost of NAV is also high, the fund house will sell fewer NAVs for a prefixed amount.
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How to build over Rs 1 crore corpus in 15 years
There can be many ways to build Rs 1 crore corpus, but we will set a target of 16 years. So, the idea is to invest a Rs 15,000 SIP for 16 years and get a 15 percent annualized return. In equity mutual funds, 12 percent annualized returns are not tough to get in the long run. But a good mix of mutual funds and reshuffling of non-performing mutual funds can help you generate returns of 15 percent.
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What will be your retirement corpus amount?
So, with that strategy, in 16 years, you can generate an estimated corpus of Rs 1,08,26,619 in 16 years, of which Rs 28,80,000 will be your investments and Rs 79,46,619 will be estimated long-term gains.
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What do you need to do?
You may invest that money in equity, hybrid, and debt funds. But since you need regular income on retirement and may not want to take risk with your money, you can pick a conservative hybrid, balanced hybrid, or a debt fund, where you get at least 8 percent annualized return.
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How to get Rs 60,000 monthly income?
As per SWP calculator, if you draw Rs 60,000 monthly income with Rs 1,08,26,619 and get 8 percent annualized return on your investments, then even after withdrawing the same pension for 40 years, or a total withdrawal of 2,88,00,000, you will have the balance worth of Rs 5,19,41,824.
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How to get Rs 60,000 monthly income?
It means, instead of Rs 60,000, you can go for a higher monthly income, or you can start with Rs 60,000 and increase the monthly income limit as inflation rises.
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What if I withdraw Rs 70,000 a month?
Given the same condition, if you withdraw Rs 70,000 a month, you can withdraw the amount for 40 years.
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What if I withdraw Rs 70,000 a month?
After that period, your total withdrawal will be Rs 3,36,00,000, and the estimated balance worth will be Rs 1,67,99,011.
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What if I withdraw Rs 75,000 a month?
Even then, your investment can give you Rs 75,000 monthly income for 39 years, and the estimated balance amount after that will be Rs 1,54,732.
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What if I withdraw Rs 75,000 a month?
