Planning carefully and making reasonable financial assumptions are necessary when building a corpus that will yield a consistent monthly income.
You will need to build up a sizeable corpus in order to make Rs 2 lakh per month—or Rs 24 lakh annually—in 15 years.
Planning carefully and making reasonable financial assumptions are necessary when building a corpus that will yield a consistent monthly income. Whether your goal is to become financially independent, save for a big future expense, or establish a passive income stream, you can use the following method to calculate how much money you should invest now to earn Rs 2 lakh a month later on.
Step1: Calculating the necessary corpus
You’ll need to build up a sizeable corpus in 15 years in order to earn Rs 2 lakh per month, which is equal to Rs 24 lakh yearly. A commonly recognized guideline for attaining long-term financial gains from investments is the “safe withdrawal rate,” which is usually fixed at 4% each year. According to this guideline, you can take out up to 4% of your corpus annually without worrying about prematurely depleting your resources.
Use the following formula
Required Needful Corpus = Required Annual Income / Safe Withdrawal Rate
= Rs 24,00,000 / 4%
= Rs 6,00,00,000 (Rs 6 crore)
You must therefore accumulate a corpus of Rs 6 crore in order to guarantee a monthly income of Rs 2 lakh. But it’s crucial to keep in mind that this presumption depends on keeping the withdrawal rate at 4%. This is a conservative strategy meant to make sure your corpus lasts for several decades, taking inflationary pressures and market volatility into account throughout time.
Step 2: How much to put in over the following four years?
The next stage is to determine how much you need to invest each month to reach your target corpus, which is Rs 6 crore. Assume for the purposes of this example that you can invest for the next four years, after which you can let the money alone to grow for the next eleven years.
We use an annual return of 10%, which is a reasonable estimate for a long-term, equity-focused portfolio, to project how your investments might increase. The idea of compounding is crucial in this situation.
With a 10% annual return, we calculate using financial calculators that you would need to invest roughly Rs 3.70 lakh each month for the next four years in order to reach Rs 6 crore in 15 years. This computation takes into account the compound growth of your investments for the eleven years following the end of your contributions.
–Assumptions on inflation and others
Even if the figures above paint a clear image, it’s crucial to keep in mind that they are predicated on certain assumptions. One of the most important variables that can impact your corpus’s value as well as the purchasing power of the Rs 2 lakh monthly income you’re aiming for is inflation. Over a 15-year period, a steady 5-6% annual rate of inflation can dramatically reduce your purchasing power. For example, in fifteen years, Rs 2 lakh now will not be worth the same.
Furthermore, these forecasts’ 10% yearly return is predicated on past performance, particularly in the equities markets. Real returns, however, can differ according on risk tolerance, asset allocation, and market conditions. If you anticipate using your money for more than 20–30 years, or if you have more cautious, lower-returning investments in your portfolio, you may also need to modify the safe withdrawal rate.
