Power of Rs 1,00,000 One-time Investment: Have you not started investing as you think your small investment won’t make any significant impact? Don’t stop yourself; take a step ahead and start investing. In fact, inculcate the habit of making regular periodic investments and lump sum as and when you get the amount. Your small beginning can produce extraordinary results in the end.
Investments of just a few lakh rupees can create a retirement corpus worth crores in the long term.
Not just that, a one-time investment of Rs 1,00,000 may produce a post-tax corpus in the long run that may help you generate a monthly income of over Rs 17,500 for 30 years.
It may be possible through the combination of the mutual fund lump sum investment and the systematic withdrawal plan (SWP).
Know how this combination may work.
Examples of long-term investment
Let’s understand it through 2 examples. See how a Rs 10,000 monthly SIP investment at a 12 per cent annualised return can grow in 20 and 40 years.
In 20 years, the investment will be Rs 24,00,000, and the estimated corpus will be Rs 91,98,574.
In 40 years, the investment will be Rs 48,00,000, and the estimated corpus will be Rs 9,79,30,710.
In the second half, growth is more than 10 times.
Rs 5 lakh one-time investment for 20, 40 years
At a 12 per cent annualised return, in 20 years, it will grow to an estimated corpus of Rs 48,23,147.
At a 12 per cent annualised return, in 40 years, the estimated corpus will be 4,65,25,485.
In both examples, you can see that because of the compound growth of your investment, the corpus is growing faster with time.
What is SWP?
SWP is a process to withdraw corpus from a mutual fund systematically.
In it, you withdraw the principal and capital gains both.
You invest an amount in a mutual fund scheme and ask the mutual fund house to sell net asset value (NAV) units to give you a fixed monthly income.
It may also save your corpus from market fluctuations to a large extent.
Calculations for story
Since we are talking about a long-term investment perspective, we will see how a Rs 1,00,000 one-time investment will grow in 30 years.
In the next calculation, we will show how the investor can draw monthly income for 30 years from the post-tax corpus.
Retirement corpus from Rs 1,00,000 investment
We will invest Rs 1 lakh in an equity mutual fund, where the expected annualised rate of return will be 12 per cent.
In 30 years, estimated capital gains will be Rs 28,95,992, and the estimated retirement corpus will be Rs 29,95,992.
Post-tax corpus
Gains from this investment will be considered long term capital gain (LTCG).
There will be a Rs 1,25,000 tax exemption on this corpus. After that, the corpus will be taxed at a 12.5 per cent interest rate.
After a Rs 1,25,000 tax exemption, the taxable income will be Rs 27,70,992.
The estimated tax on this corpus will be Rs 3,46,374.
Post-tax estimated corpus will be Rs 26,49,618.
SWP corpus
Rs 26,49,618 will be the SWP corpus.
We will invest this amount in a hybrid or debt fund because it is meant for retirement, and we want to take the minimum risk on it.
So, our expected return from the investment will be 7 per cent.
Monthly income from SWP corpus
The estimated monthly income that the investor can draw from this corpus for 30 years will be Rs 17,525.
Total withdrawn amount in 30 years
The total estimated withdrawn amount in 30 years will be Rs 63,09,000, and the estimated balance left will be Rs 909.
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
