Decoding the Goal: The Magic Number
First, let's translate a ₹25,000 monthly salary into the total amount you need saved. A monthly income of ₹25,000 means you need ₹3,00,000 per year from your investments. To generate this without eating into your principal too quickly, financial planners
often use a 'safe withdrawal rate'. A conservative rate for stable, low-risk investments is around 6% per year. Using this logic, the total corpus you would need is approximately ₹50 lakh (₹3,00,000 divided by 6%). The headline isn't about saving 10% of your current salary once; it's about building a substantial corpus of around ₹50 lakh over time.
What Are Liquid Funds?
Liquid funds are a type of debt mutual fund that invests in very short-term market instruments like treasury bills and commercial papers, with maturities of up to 91 days. Their main features are high liquidity, meaning you can get your money back quickly, usually within a day, and low risk compared to other mutual funds. They are often seen as a smarter place to park surplus cash than a standard savings account because they have the potential to offer slightly better returns, which have historically been in the range of 6-7% annually, though this is not guaranteed.
The Path to ₹50 Lakh: The '10 Percent' Rule
This is where the 'save ten percent' part of the headline comes into play, but it requires patience. Saving 10% of your salary is a classic personal finance rule for building wealth. Let's say you earn ₹80,000 a month and manage to save 10% (₹8,000) via a Systematic Investment Plan (SIP). If your investments generate an average annual return of 12% (which typically requires a mix of equity and debt, not just liquid funds), it would take you approximately 18-19 years to build a corpus of ₹50 lakh. If you start with a lower salary or can only save less, the timeline will be longer. The key is consistent, disciplined investing over a long period.
Generating Your Monthly Income: The SWP Strategy
Once you have built your corpus, you don't just withdraw it all. Instead, you use a facility called a Systematic Withdrawal Plan (SWP). An SWP is essentially the reverse of a SIP. You instruct your mutual fund to redeem a fixed amount—in this case, ₹25,000—from your investment portfolio and credit it to your bank account every month. The rest of your corpus remains invested, continuing to earn returns. This provides a regular cash flow, much like a salary, while aiming to preserve your capital for as long as possible.
A Realistic Investment Strategy
Relying solely on liquid funds for this entire journey is not the most effective approach. While they are excellent for safety and liquidity, their modest returns may not be enough to build your corpus within a reasonable timeframe, especially when accounting for inflation. A more balanced strategy involves two phases. During the accumulation phase (when you're building your corpus), a portfolio mixed with equity mutual funds and debt funds can help you achieve higher growth. As you near retirement or your goal, you can gradually shift your money into safer options, like debt funds or liquid funds, to protect your capital. This is the portfolio from which you would then start your Systematic Withdrawal Plan (SWP).
