In the last 2 posts I had written about my need of an annual passive income of 8 lacs and how I had arrived at it. Just to recapitulate this figure does not have expenses for accommodation or children’s education, nor does it have any amount for fresh investment, It does have about 1 lac for various insurance expenditure.
In this post I will talk about my plan of generating this income from the current year 2015. The idea is to do this till 2024 and then get into the phase for retirement spending. Note that these two plans are different ones. In the FI phase, I will be dealing with passive income while in the retirement phase I may re-balance my assets in a different way. Also, in the next 10 years I will still be investing, though not from PI. In my retirement phase I will do very little of new investment.
I will only write here about my plans of generating passive income and not of my overall investment strategies or my portfolio, which I will cover in other posts. The following is the avenues from where I generate passive income:-
- The tax free bonds that were available in late 2013 and early 2014, happened exactly at the right time for me. I had invested a total amount of 24 lacs in it and would have done more if I could mobilize the amount. I get a tax-free return of 8.8 % from these which is great. Total income from these annually is about 2.15 lacs.
- Over the years I have invested in some Mutual funds in the Dividend option. This is mostly for funds that I bought early in my investment cycle, the latter ones and my current SIP s are all Growth options. Though the dividends are not certain, it can be estimated around 1 lac per year.
- I had also invested in the ICICI Value Fund Series for about 10 lacs, purely with a view to earning dividend. These funds would normally give dividend of 1.5 lacs a year which is not guaranteed but very likely.
- The cornerstone of my FI plan was my investment in FMP s. I have substantial investment here and had plans to earn the interest as LTCG and keep investing the principal back. Due to the change in tax rules I have been forced to roll over the FMP s that had a duration of less than 3 years. In 2015 my LTCG from the FMP maturity will be close to 3 lacs and from 2016 this should be in the range of 6 lacs or so every year.
- Dividends from my stock portfolio are again difficult to predict with certainty but it would be in the range of 1.5 to 2 lacs every year.
- Interest from POMIS and FD will be about 1.5 lacs annually but I will normally not spend this.
- Interest from PPF will be about 3.5 lacs in 2015 but I do not plan to withdraw it.
So for 2015 the first 5 sources should be enough to meet my need of 8 lacs and this should logically continue for the entire duration of the FI period. Note that all the sources of income are really passive and tax free. I only need to re-invest the principal when an FMP matures which hardly takes any efforts.
The above gives me complete peace of mind and I can now pick and choose the kind of assignments that I want to do, as I am not dependent on the Active income from Consultancy for funding my lifestyle.
In the next few posts, I will try to work out a generic template and some guidelines as to how one can go about planning for FI. As you can see from my example, it is entirely possible.