How to withdraw Rs 40,000 per month from mutual funds with a SIP of Rs 5,000?

Mutual funds have two important tools such as SIP and SWP. In this article, we have explained how you can withdraw Rs 40,000 each month with SWP, by investing in SIP of Rs 5,000 each month.

Mutual fund is one of the best tools available for retail investors who cannot invest enough time and energy in researching individual securities and making a portfolio. Interestingly, mutual funds have two most essential tools available – SIP & SWP.

A Systematic Investment Plan or SIP is a tool that helps you invest a specific amount periodically for a precise period. Periodicity ranges from daily, weekly, monthly, quarterly and annually. SIP is especially helpful to inculcate a habit of disciplined investing.

Systematic Withdrawal Plan or SWP is a mutual fund tool that helps you to gradually withdraw a pre-decided amount for a specific period or till the balance lasts, whichever is earlier. Using this tool usually helps to withdraw the required amount without stopping the growth of the unwithdrawn amount.

Now the question is how to get Rs 40,000 each month, by investing Rs 5,000 a month. Let’s assume that you invest Rs 5,000 in a SIP setup that earns returns of 10% for the next 25 years. This accumulates to Rs 62.16 lakh in 25 years.

Post 25 years, you invest the accumulated lump sum in a portfolio of mutual funds that fetch returns of around 8%. Then from 26th year, you can withdraw Rs 40,000 every month for the next 40 years.

This strategy is most suitable for retirement goals. This is because after retirement the income for most people is on the lower end. This, however, is provided that you are not working anymore. 

Moreover, the expenses during retirement are also at the higher end assuming the occurrence of health issues. And as you age even health insurance becomes costly, not to mention tonnes of exclusions.