Mutual Funds Strategy 118: Accumulation Consolidation Distribution (ACD) Calculator
You might already be familiar with the SIP, lumpsum, or the SWP calculator. If not, today would be a good day to start learning about them.
SIP calculator will show you how much will be your portfolio value if you continue investing for a period.
Example:
Monthly Investment: Rs20000
Tenure: 20 years
Assumed Returns: 13%
Your total fund value after 20 years would be: 2.29 crores.
Lumpsum calculator will show you the fund value after a period if you choose to make a one-time investment.
Example:
One Time Investment: Rs10 lakhs
Tenure: 20 years
Assumed Returns: 13%
Your total fund value after 20 years would be: 1.15 crores.
Systematic Withdrawal Plan (SWP) Calculator will show you how much money you can withdraw as a monthly income from your retirement corpus
Example:
Retirement Corpus value: 2 crore
Monthly Income: 2 lakhs
Assumed Returns: 13%
Your total fund value after 20 years would be: 3.64 crores.
All three calculators would have failed to invoke your curiosity. After all, unless you know why you need them, what significance could these calculators have in your financial life?
My job today would be to give you a fresh perspective on your financial roadmap, and once you are initiated, we can try to learn these calculators. Let us assume you start earning at the age of 20s. You could either become a salaried employee or a self-employed professional. If you are a salaried employee, you get a regular monthly income. In case you are a professional, your monthly income could vary. As long as you are earning and you have the willingness to invest, we can call it the Accumulation Phase.
Then there would be a different phase in your life called the Consolidation Phase, wherein you do not wish to invest fresh capital and at the same time not make any redemptions. You might be transitioning into retirement and hence would prefer to use your current income to pay off the debts, get your kids married, fund their higher education etc. In this stage of your life, you might not have a disposable income to top up your investments.
The third stage is the Distribution Phase, where your active income stops, and you would have to depend on your retirement corpus to fund your remaining years.
Now, you can see a pattern emerging. Every individual goes through the accumulation, consolidation, and distribution phase. Irrespective of your current income, profession or the nature of work, you can all handle it in financial terms by using my ACD calculator. Take a look at the calculator — click here.
How to provide the inputs
Accumulation Phase: You are going to contribute to the monthly SIP for a period of 20 years. An initial lumpsum of Rs 5 lakhs too.
Initial Lumpsum Investment: Rs500000
Monthly SIP Amount: Rs 25000
Accumulation Duration: 20 years
Annual Returns in Accumulation: 13%
After 20 years, refer to cell C25 to know the final accumulation value. In this case, it works out to be: Rs 34,399,522.51 ~ 3.43 crores
Consolidation Phase: For the next 10 years, you are unable to contribute anything. You are also ensuring the current portfolio is not withdrawn either. The fund value at the end of accumulation is the input for the consolidation phase. Other than the tenure, you need not input any other data. Refer to cell F17 to see the final portfolio value after the consolidation phase, i.e. Rs 116,771,497.33 ~ 11.67 crores.
Distribution Phase: The next step is to set your monthly withdrawal. I have set it at 10 lakhs per month. You are free to change that according to your needs. The calculator is set for a fixed distribution period of 10 years. If you require a longer distribution period, please get in touch with me, and I will edit the calculator for you. Even after a withdrawal of 10,00,000 x 12 x 10 = 12 crores, your final fund value will be: 175,351,727.07 ~ 17.53 crores.
Now the ball is in your court. It takes 5 to 10 minutes of planning how to set the next 25+10+10 = 45 years of your financial journey. If you start with the end in mind, you can simply calculate the monthly SIP you require now. If you haven’t thought it that far, do it today — you will be surprised to see the monthly contributions are much less than you would have imagined.
That’s all for today, and I hope this article helped you with a fresh new perspective. You should consider sharing this with your friend or relative who could benefit from this.
If time permits, read my latest book — How to Join the Top 1% Options Traders Club.