Passive income is when you start earning regular income from your investments. Most people are not able to pursue their life calling or something that they are passionate about though they would love to do so. Now that’s because they are stuck in their day jobs and they are unable to be free.
To be financially free, you can plan to have a corpus which can be invested in such a way, that it can earn you a salary every month without you having to do anything else. And you need not wait till your retirement to follow your passion.
This is a simple plan. Nothing complicated.
Here’s the PLAN:
- First you decide on the amount you require every month. Let’s say the amount is x.
- Secondly, you calculate the corpus required to be invested and generate a monthly income. You just multiply it by 75 which will be 75x. It’s pretty straightforward, isn’t it?
- Thirdly, you decide on your risk profile and accordingly select a diversified / large cap fund.
- Fourthly, set up a SWP (Systematic Withdrawal Plan) with the selected fund such that you are withdrawing amount x every month.
Please remember, for tax efficiency, it is better to start withdrawing after one year of investment.
Let me illustrate the above plan.
- Let’s say you want Rs. 50,000 every month
- The corpus required to generate this income is 75x which means 75 x 50000 which is Rs 37,50,000/-
- Now we invest this amount into a diversified mutual fund scheme
- Next, we set up a Systematic Withdrawal Plan from the above scheme to withdraw Rs 50,000 every month.
- For the purpose of tax efficiency, it is better to wait for one year before starting the withdrawal.
If you had implemented this plan in July 1997 in FT Prima Fund and started withdrawing Rs 50000/- in the same month, you would have withdrawn Rs. 1,20,00,000/- over 240 months till July 2017.
Your current fund value after deducting your withdrawals would still be Rs 10,30,29,722/- giving you a compounded annualized return of 25.41%
These figures given above are the real historical performance of the fund.
This is phenomenal, mind-blowing stuff.
If you face any problems implementing this plan, or if you have any doubts, shoot us an email.
We will be glad to help you out.
Let us make your money work for you.