With provisions of pension being mostly done away with in recent years, there is a lack of financial security net during retirement years. This raises an obvious concern about how one should take care of the day-to-day expenses post retirement. The fact that expenses during the retirement years would be much higher than what it is today, makes retirement planning a crucial financial goal. After all, retirement is one phase in life where each wants to lead a stress-free life.
For this purpose, an investor can consider making use of an add-on feature know as Freedom SIP to your mutual fund investments. This feature offers a perfect solution for your retirement years. It ensures you have a monthly secondary income flowing in which can be utilised to meet various expenses during retirement years. It offers a one-stop solution making one financially free to enjoy the sunset years.
Advertisement
What is Freedom SIP?
Freedom SIP — an innovative add-on feature — is a blend of two powerful investment tools — SIP and SWP. It works in three parts — Grows your wealth through SIP route over the chosen SIP tenure, switches to a target scheme post the tenure and lets investors reap the benefits as monthly income through SWP. The monthly withdrawal is designed in multiples of the SIP amount and continues till your accumulated units last. The entire process is seamless and hassle free, saving a lot of your energy and time when it comes to investment management.
Through Freedom SIP, investors have the option of a SIP tenure ranging from 8, 10, 12, 15, 20, 25 to 30 years. Based on the time you wish to retire; you can choose a suitable tenure. For instance, if your SIP is Rs 10,000 for a tenure of 8 years, the Freedom SIP feature will let you have a systematic withdrawal of Rs 10,000 (1X) per month post the tenure. If tenure is 10 years, the withdrawal will be 1.5X i.e. Rs 15,000. From the tenure of 12 years onwards the monthly withdrawal will rise in multiple from 2X or Rs 20,000 to 12X or Rs 1.2 lakh for the SIP tenure of 30 years. In short, the longer the tenure of SIP, higher will be the multiple and hence the withdrawal amount.
Advertisement
The tenure you choose is basically the accumulation phase with focus on wealth creation. The second stage kicks in when you near your financial goal of retirement. The accumulated corpus is switched to a target scheme with lower risk profile with an objective to conserve your capital. And from this scheme, through the SWP feature, you get a monthly payout.
How can Freedom SIP help you achieve your retirement goal?
For instance, if you are 30 and have 30 more years to work before you attain retirement, Freedom SIP can do wonders. If your current monthly expenses are, say, Rs 40,000, taking 5% inflation into consideration, you would require Rs 1.77 lakh in the very first month of your retirement. This amount will only increase with every passing year. If you happen to live for another 20 years post retirement, the monthly expenses will be around Rs. 4.78 lakh. It is here that Freedom SIP comes handy to financially secure you.
Let's assume you would require, on an average, Rs. 2.5 lakh on a monthly basis during these 20 years of retirement. In such a scenario, Freedom SIP will be an effective and highly efficient way to help. Having known the requirement helps in choosing the proportionate SIP amount through Freedom SIP feature which translates to about Rs. 21,000 per month for a tenure of 30 years.
In effect Freedom SIP is a solution-based investment which lets you feel free to decide when to retire and most importantly to live the life you always imagined. You may choose the proportionate SIP amount and a suitable tenure while leaving the rest to Freedom SIP. This arrangement will help you have a peaceful mind and a true sense of financial freedom while you live a stress-free retirement life. Thus, it is advisable for investors to utilize features such as the Freedom SIP to live a peaceful and financially sorted post retirement life.
