Have you ever wondered what is the biggest security of old age? House, car or jewelry? None of these… A fixed income coming every month is the real security. The same income which gives you the assurance that no matter what your age, your expenses will continue and you will not have to lend a hand to anyone. Lakhs of people save in search of this assurance. And this is the story of Ravi’s search.
Ravi was 25 years old. He got a job, but the salary was not very high. Still, he had a small dream in his mind that he would not have to worry about money in the last years of his life. While traveling in the local train every day, he would read in newspapers many times that people make huge amounts of money through SIP. After reading all this, he would think, “This must be a rich people’s game. Where can common people like us be able to accumulate so much?”
One day he met his old friend. Ravi asked him, “Friend, does SIP really achieve anything?” The friend was about 35 years old at that time and he knew very well the meaning of investment. He laughed and said, “Ravi, SIP is not for the rich, but for the patient. You just save a little every month and invest. After 10-20 years, you will thank yourself.”
Cut down on wastage, invest in SIP
Ravi understood this. He thought that at least a little reduction could be made in the expenses of tea-coffee, travelling, fulfilling small hobbies. And that’s it, he decided to save Rs 5,000 every month, whether circumstances were good or bad. From here his SIP journey started.
Everything went well in the beginning. Rs 5,000 would be spent and the rest would be spent. But the real challenge came when the stock market started falling. Sometimes red flags were seen, sometimes there were reports all around that “market crashed”, “shares fell”, “investors suffered losses”. All these headlines used to scare Ravi. He felt that his hard-earned savings might be lost. But then he talked to his friend and the friend explained that all these things are useless. “You just keep investing.” He continued SIP.
Fund of Rs 50 lakh created from Rs 5,000 per month
Year by year Ravi’s age increased to 30, from 30 to 35, from 35 to 40 and within no time 20 years passed. In these 20 years, he had invested a total of Rs 12 lakh (Rs 5,000 every month). But meanwhile compounding showed its game. The market sometimes fell, sometimes rose, but it did not stop investment. When he turned 45 and checked his fund. His eyes sparkled. His small savings together had amounted to approximately Rs 49.5 lakh. Now comes the most important part of the story. He got an average return of about 12 percent during this entire period.
Ravi thought that he had saved for 20 years. Now the income for the next 25 years should also be ensured. He wanted that he should continue to get fixed income every month for 45 to 70 years, because if he gets some extra income apart from his job, then life will be fun. He will be able to roam around and fulfill his hobbies. It was here that Ravi heard about SWP (Systematic Withdrawal Plan) and applied for it.
SWP: The tree will continue to flourish, you keep eating the fruits
In SWP your money remains invested and also grows. You withdraw a fixed amount from it every month. Like you have planted a tree, keep plucking the fruits every month, but the tree remains standing there and keeps growing. Ravi started SWP with his approximately Rs 50 lakh. His goal was to get a fixed amount every month for the next 25 years, and by the age of 70 this money would be exhausted. By then he will earn more and create a separate fund by investing in a separate SIP.
You will be surprised to know that Ravi could have received approximately Rs 52,000 every month for the next 25 years. Imagine, someone who adds Rs 5,000 per month for 20 years will get Rs 52,000 every month for the next 25 years. It’s amazing isn’t it? Overall, by the age of 70, he will be able to withdraw approximately Rs 1.57 crore. Investment of Rs 12 lakh, and that in monthly installments and returns more than Rs 1.5 crore.
If Ravi wanted, he could have changed his job at the age of 45. He could choose a job with low salary but of his choice. Or one could run a small business, because one would have to get a guarantee of Rs 52,000 every month. This amount would have given him freedom in his decisions. This is the real “Financial Freedom.”
