Given the rising inflation and improving lifestyle amid increasing lifespan, it is increasingly becoming essential to ensure there is adequate cash flow when one attains retirement. Investment instruments which are inflation-beating and tax efficient need to be given priority for retirement planning.
The established long-term track record of relatively higher risk-adjusted compounding returns makes mutual funds the suitable choice. These are akin to solution providing investment tools which are well-regulated, truly diversified, inflation-beating and professionally managed by experienced investment experts. Moreover, systematic investment plans or SIPs which are simple, convenient and affordable ways of staggered investment empower every investor to meet their goals.
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Freedom SIP, an add on feature, is a perfect solution for retirement planning. It has all the features to help one lead a financially stable and comfortable retirement life. Freedom SIP endeavors to make investors financially independent by creating a secondary source of cash flows while one follows his/her passions.
What is Freedom SIP?
Freedom SIP, an optional feature, is essentially a suitable blend of systematic investment and systematic withdrawal. Through SIP, one can invest for a minimum tenure of 8 years and stretch it up to 30 years into a source scheme. Once the tenure ends, the fund accumulated is switched to another fund - the target scheme, which is of investor's choice. Given the long term nature of investment, the source scheme can be an equity offering while the target scheme can be hybrid or a debt scheme. This is to ensure that the corpus build over the years is not prone to undue market risks or irrational investor behaviour.
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It is from the target scheme, the systematic withdrawal plan (SWP) is initiated and an eligible number of units are liquidated every month. The entire process of investments, switch and withdrawal is completely carried out in an automated manner with zero investor intervention.
An Effective Option for Retirement Planning
The ability to have a monthly withdrawal amount in multiples of your monthly investment is, prima facie, is an attractive proposition which Freedom SIP offers especially in the context of retirement planning. The longer the tenure, the higher is the multiple applied. However, what goes behind this wealth creation journey is even more compelling to plan retirement through Freedom SIP.
Often, investors cancel or terminate their SIPs mid-way which proves to be detrimental in the wealth creation. Freedom SIP, with its fixed tenure, inculcates long-term and disciplined investment habit across multiple market cycles. This catapults the value creation as time spent in the market is significant.
Further, Freedom SIP addresses certain behavioral challenges faced by an investor. For instance, investors tend to get into a trap of greed and fear. Either they start investing more when markets are richly valued or book losses when market sentiments are weak. Freedom SIP saves investors from such irrational behavior.
Further as retirement knocks at the door, a certain amount is credited to the bank account at periodic intervals from the wealth created over the years’ via SWP. Given this arrangement, Freedom SIP discourages total withdrawal of the corpus created in one go. Instead, post liquidating the required units, the balance units continue to remain invested and grows in value over time. Thus retirees can have substantially higher numbers of withdrawals.
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The effectiveness of SWP can be gauged from the fact that if an investor would have invested an amount of Rs. 1 crore invested in ICICI Prudential Multi-Asset Fund a little over two decades back, the investor would have fetched a continuous monthly withdrawal of Rs 1 lakh thus far. And the value of the remaining units would run at a staggering Rs 31.8 crore. Thus SWP, often underestimated, is a powerful withdrawal feature which not only ensures a steady cash flow but also aids in creating considerably higher wealth as well.
Thus Freedom SIP brings to the fore a powerful combination of SIP and SWP. Investors can consider using this feature to plan for their retirement needs. This feature will allow to generate an income stream in the golden years of one’s life, thereby by leading to a happy overall investment and life experiences.
