If we invest Rs10 lakh in a balanced fund, and start a systematic withdrawal plan (SWP) of Rs10,000 per month, then what will be the corpus after 10 years? Can you also give us a range of what that corpus will be if we invest in the best-performing and worst-performing funds?
—R. Kannan
To answer your first question, we would need to make a few assumptions about the rate of return of the fund where you have made your investment. The balanced fund category has returned at an annualized rate of 10.85% over the past 10 years. It would not be unreasonable to assume a similar rate of return would be possible in the next 10. However, let’s consider three possibilities around this number. An annual return possibility of 9%, one of 11%, and a third possibility of 13%. If you start withdrawing from your corpus right away, you would be withdrawing at a rate of 12% initially from your corpus (annual withdrawal of Rs 1.2 lakh from a Rs10 lakh corpus). So, what would remain in your hand would be a matter of a race between your rate of withdrawal and the rate of growth of the fund, in very simple arithmetic terms. So, considering the three possibilities and with some help from spreadsheet tools, we can see that if the rate of return is 9%, you would have Rs2.8 lakh remaining in your corpus at the end of 10 years. If your portfolio grew by 11%, you would be left with Rs5.4 lakh and if it should grow by 13%, you will have a bulk of your starting corpus to the tune of Rs8.9 lakh still left in the kitty.
