Often, we are passionate to follow our hearts and do unconventional things when we are young. But as one grows up, various social pressures - be it from family or peer pressure - our interests and passions tend to get compromised as we enter life's rat race. But the need for financial stability and shouldering life's responsibilities distance us from our passions. As a result, we typically end up in a job which we may or may not have a desire to do.
Interestingly, at the back of our mind we always endeavour to live a life which we desire - free from any financial burden. It is here that the need for Financial Freedom comes to the fore. Prima facie, it does seem like an unbelievable and too good a situation, probably not possible. But what if it really turns out to be a reality!
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What is Freedom SIP?
To help you on this journey to financial freedom, there are various tools available. One such tool is Freedom SIP. This is an add-on feature on a normal SIP. Here, an individual invests for a fixed investment tenure ranging from 8 years to 30 years into a scheme of one’s choice. Post the completion of the tenure, the investor gets a monthly payout which is typically in multiples of the original SIP amount. What needs to be highlighted here is that longer the tenure of investment, higher is the potential multiplier effect on the monthly payout. Investors can reap the benefits of their investments in the form of systematic withdrawal on a monthly basis once the SIP tenure ends.
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How does Freedom SIP work?
Freedom SIP is a combination of two powerful tools — SIP and SWP. What makes the mechanism robust is its ability to not only generate wealth over an extended period of time but also to harness the benefits of the accumulated wealth in a systematic manner through SWP. This is made possible through three phases.
In the first phase, investors accumulate units through SIP in a source scheme during the investment tenure. Given the long term nature of the investment, investors can consider using an equity oriented scheme as their source scheme. In the second stage, post the completion of tenure, the accumulated corpus in the source scheme is switched to a target scheme. The target scheme should typically be of a lesser risk profile as the money accumulated will be held in this scheme. One can use a hybrid or a debt fund as the target scheme. Finally, in the third stage, systematic withdrawal plan or SWP kicks off from the target scheme with liquidation of proportionate units to honor the monthly payout. The inbuilt mechanism in Freedom SIP ensures these transitions are carried out seamlessly such that investors have a happy experience.
Why Freedom SIP?
It is a fact that only a fraction of investors is successful with their investments. The most common reason behind this is not adhering to the investment basics. When investing through the Freedom SIP route, you are forced to invest in a disciplined manner and reap the long-term wealth creation potential that the instrument offers. Here are the major benefits of Freedom SIP which every investor should consider.
1) Long-Term Approach: Freedom SIP, with its design of fixed tenure, ensures investors stay long and disciplined. Such an approach keeps investors neutral to market factors during the unit accumulation phase.
2) Behavioural Finance: A rational financial behaviour is the key behind successful wealth creation. Failing to maintain it proves to be detrimental. Freedom SIP lets the systematic investment complete its full tenure irrespective of the market cycles.
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3) Disciplined Withdrawal: A systematic withdrawal not only offers you the required cash flow by liquidating proportionate units but ensures that the remaining units continue to remain invested and grow over time.
To conclude, Freedom SIP aims to offer a happy and satisfactory investment experience to investors while fulfilling their goals. It also helps in creating a secondary cash flow, making it a practical investment solution for investors looking to enjoy financial freedom in a hassle and stress-free manner.
