How a 5K SIP Can Fetch You Rs 1.8 Lakhs per Month Fixed Income in Mutual Funds in 30 Years?

As part of financial planning, it’s important to invest for the future and aim to secure a fixed income post-retirement. While traditional investment options like fixed deposits or bonds offer stability, they often come with low returns that cannot beat inflation. Even pension plans may offer relatively modest returns. However, a strategy that combines SIP (Systematic Investment Plan) with SWP (Systematic Withdrawal Plan) in mutual funds can potentially offer a solution that can generate higher fixed income during the withdrawal period. In this article, we would provide insights into How a Monthly SIP of Rs 5,000 can fetch you Rs 1.8 Lakhs per month Fixed Income in Mutual Funds over a span of 30 years.

What is a SIP in mutual funds?

Systematic Investment Plan, commonly known as SIP, is a method of investing in mutual funds that allows investors to invest a fixed amount at regular intervals like weekly, monthly, quarterly, etc. The popular choice is the monthly SIP. It helps investors save in a disciplined way and benefits from compounding in the medium to long term. With monthly SIPs, investors need not time the market, which reduces the impact of market volatility.

For instance, consider an individual who decides to invest Rs 10,000 per month in a mutual fund through SIP. Regardless of market conditions, this individual invests the same amount every month, leading to significant wealth creation over the medium to long term.

Do you know that there are 10 mutual funds where 10K SIP has turned upto Rs 52 Lakhs in 10 years.

What is SWP in mutual funds?

Systematic Withdrawal Plan, or SWP, is a facility offered by mutual funds wherein investors can withdraw a fixed sum of money at regular intervals, irrespective of whether the mutual fund has generated such returns or not. SWP allows investors to create a steady income stream, similar to fixed income, from their investments while keeping the principal amount invested. Investors can also withdraw a higher amount that would come from the principal amount if they wish.

For example, imagine a retired individual who has accumulated a good amount of corpus in mutual funds over the years. Instead of withdrawing a lump sum amount, they can opt for an SWP, choosing to receive a fixed monthly income. This way, they can ensure a regular cash flow to meet living expenses without withdrawing the entire investment corpus.

What are the Potential Returns in mutual funds SIP?

In the past, mutual funds generated 12% to 15% annualized returns, though not guaranteed. However, it is safe to assume a 12% return. How much return one can accumulate if they invest Rs 5,000 @ 12% returns in 30 years? Let me explain with an example.

Mr. Rajesh, 30 years old, is investing Rs 5,000 SIP per month in a mutual fund scheme. With an average annualized return of 12%, over a period of the next 30 years (31-60 years of age), the investment amount would be Rs 18 Lakhs (Rs 5,000 x 360 months), and the accumulated corpus including returns would be approximately Rs 1.77 crores. This significant corpus is created as a result of consistent investments compounded over time without timing the market. Below is the snapshot of Mutual Fund SIP Excel calculator. You can download and customize based on your need.

5K SIP turned to Rs 1.7 Crores in 30 years

How SWP in mutual funds can provide a stream of fixed income?

Once the amount is accumulated for 30 years, investors can opt for an SWP in mutual funds to generate a fixed income stream post-retirement for a 30-year term.

Continuing the above example, let’s assume Mr. Rajesh has accumulated Rs 1.77 Crores, and at the age of 60 years, he feels that he wants to withdraw the total amount for the next 30 years (61 to 90 years of his age). He can choose to withdraw Rs 1.8 lakhs per month using SWP. This amount can provide a comfortable fixed income to take care of various expenses or fulfill his retirement needs.

Below is the snapshot of Mutual Fund SWP Excel calculator. You can download and customize based on your need.

Is it possible to increase the SWP amount?

There are a few ways:

Increase the SIP amount: By increasing the SIP amount, the accumulated amount would be bigger, hence SWP withdrawals can be increased too. Alternatively, one can increase their SIP over time with an increase in their business income or with salary appraisals.

Invest in high-risk high-return funds: Flexicap funds, mid cap, and small-cap funds generate higher returns compared to large-cap or index funds. High-risk appetite investors can add these funds as part of their mutual fund portfolio so that their accumulated corpus can increase. One should note that these are high risk-high return mutual funds.

Reduce the SWP period: While this might not be the appropriate way, one can reduce the SWP period from 30 years to 25 years or 20 years and increase their SWP amount. One should follow this approach only in case they have another set of investments beyond these mutual funds portfolio.

Are there any risks in this SIP + SWP for 30 year strategy?

While the strategy of investing through SIPs and generating income via SWPs offers several benefits, this strategy has some negative or risk factors too.

Zero balance after 30 years: While this strategy of SIP + SWP for 30 years is good, it is assumed that the entire amount would be withdrawn. This strategy is not for investors who still want to see some corpus left after 90 years of age.

Market Volatility: Mutual fund investments are subject to market risks, and returns are not guaranteed. Fluctuations in market conditions can impact the value of investments. Since the investment and withdrawal periods are long-term, this risk might have less impact.

Inflation: While SIPs and SWPs aim to take care of inflation, investors should consider the erosion of purchasing power over time. The fixed income generated may not keep up with the rising living costs. In simple terms Rs 1.8 lakhs per month income today is not the same after 30 years.

Fund Selection: Choosing the right mutual funds based on investment goals, risk tolerance, and time horizon is critical. Investors also need to and protect their mutual fund portfolio from mutual fund scams. Such risks can be reduced by investing across AMC’s and across various market cap mutual funds.

Tax Implications: Capital gains from mutual fund investments are subject to taxation. The amounts indicated are pre-tax, and post-tax, the amounts would be lower.

Which are the 10 Mutual Funds to invest through SIP?

While there are several hundred’s of mutual funds, investors can filter the funds based on their financial goals, risk appetite and tenure. Since the objective is to create a corpus for retirement for long term, one can consider long term funds. In case of high risk appetite investors, they can add flexicap, midcap, smallcap mutual funds and international mutual funds too.

Which are the 10 Mutual Funds to use for Systematic Withdrawal Plan?

Here the objective is to protect the corpus created and aim for stable returns while withdrawals are happening month on month.

Balance Advantage funds or Hybrid mutual funds could be best choice.

Earlier we have recommended 15 Most Recommended Mutual Funds to invest which has covered all the mutual fund categories including hybrid funds.

Alternatively, one can choose bucket strategy where one can invest in 2-3 segment of investments in mutual funds. We have explained in this article earlier How Bucket Strategy can help wealth creation in the long term.

4 comments

  1. Sir I would retire from service on 30/06/2024.and approx 1 cr I receive after retirement.can you suggest me where I can invest my hard earned money for peaceful living of rest in my life.i have no liability,and also I have own house and 800000 mediclaim.

  2. Nice one again, you keep coming witj very good articles and examples. Kudos

    Also kindly write about tax free bonds in 2024 which retail can apply

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