Where to invest Rs 1 crore to get an income of Rs 1 lakh per month depends on many factors like your risk tolerance, investment goal, financial situation and time horizon. If a retired person wants to earn such an income, then he has to keep some things in mind. Let us try to understand those factors here.
Anurag Saini (name changed) is a retired businessman. He is 65 years old. After meeting all his obligations, he has Rs 1 crore to invest. His target is to generate a monthly income of Rs 1 lakh while keeping the principal safe. He has a moderate risk-taking ability. He plans to maintain the investment for 15 years or more. What are the best investment options for him? Actually, this question is of many people like Anurag who want their principal amount to be saved and keep earning monthly income on it.
According to Prableen Bajpai, founder of Finfix Research and Analytics, a 12% return on the invested fund is required to generate a monthly income of Rs 1 lakh or an annual income of Rs 12 lakh. To guarantee a stable retirement income, it is important to consider that fixed income financial products usually do not give high returns. Along with this, it is also important to keep in mind that the purchasing power of your invested corpus should be maintained over time. Having inflation adjusted income is important to protect against the impact of inflation on household expenses. Tax should also be kept in mind for investment.
Systematic withdrawal plan is a good option
If one is comfortable with moderate risk, investing in two hybrid funds and opting for a Systematic Withdrawal Plan (SWP) is a good idea. Balanced Advantage and Multi-Asset Funds usually give a long-term average return of 10-12%. The reason is that they invest in a mix of equity, debt and gold.
The benefits of SWP include lower tax liability on principal withdrawal, more favourable taxation compared to fixed income products, and the potential to earn positive real returns over time despite investing in equities.
How to withdraw money to last for 15 years?
With a 10% return, a fund of Rs 1 crore can last for 15 years if you withdraw Rs 1 lakh every month. Considering a 6% inflation rate, the fund can last for nine years with increased withdrawals over time. To have enough money for 15-18 years, it is advisable to reduce the monthly withdrawal to Rs 60,000-70,000. Apart from this, it is important to prioritise health insurance and emergency funds.
