Freedom SIP for Retirement Planning
Most of us want to be financially free, whether to discover ourselves, live our dreams or retire early. Retiring early is one wish that figures in many people’s goal lists. However, planning for early retirement is not an easy task. One aspect that adds to the list of woes is the lack of active income after retirement. So, one has to rely on the money from investments that they have accumulated before their retirement. However, the danger is that money from investments made earlier might dwindle with time. Given the advancement in medical science, life expectancy is continually improving, thereby opening the doors of the danger of running out of money during the retirement years.
There are several ways in which an investor can build a retirement kitty. One the easiest ways is to start a long-term SIP in an equity fund and keep n investing throughout one’s working years. Thanks to rupee-cost averaging and compounding effect, one can be rest assured that an investor will manage to create a neat sum as his/her retirement corpus. But once this is done, it is important to protect the corpus generated and also set-up a stream of income outflow during the retirement phase. Managing each of these stages for a layman can be a challenging task. This where a feature known as Freedom Sip can be very helpful.
What is Freedom SIP?
Freedom SIP is a blend of a Systematic Investment Plan and Systematic Withdrawal Plan which can help investors achieve their retirement goals in a planned and seamless manner. In this facility, an investor can set up SIP in a fund for a specific duration which ranges from 8,10,12,15,20,25 or 30 years. Generally, the scheme chosen from long-term SIP should be equity-oriented.
Once the SIP period is over, the amount gets transferred to another scheme which is either debt-oriented or hybrid in nature. This is done with an aim to protect the corpus created from equity market volatility. Thereafter, the SWP process starts from this fund and continues till there are units available. In the case of SWP, the monthly SWP amount will be a multiple of the initial SIP amount. The multiple here can range from 1x to 3x. For an SIP tenure of 8 years, the monthly SWP installment will be 1x. Similarly, for 10, 12 and 15 years, the SWP installment will be 1.5x, 2x and 3x respectively. For example: If initial SIP registered for tenure of 15 years is Rs. 10,000 per month, then SWP will be Rs 30,000 (3x Rs. 10,000).
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Benefits of Freedom SIP over Regular SIP
Freedom SIP has a lock-in period:?Traditional SIP does not have a lock-in duration. However, Freedom SIP does have lock-in periods of 8,10,12,15,20,25 or 30 years. This can help you to continue investing systematically without stopping your SIP due to market volatility and accumulate the required corpus.
Generate reasonable returns:?Instead of looking at hundreds of schemes, you have access to a curated list of source and target scheme to start your retirement journey. This helps in cutting down clutter. The options available includes a variety of schemes ranging across equity, hybrid, and FoF (Funds of Funds).
Automatic SWP:?When you avail Freedom SIP facility, you don’t have to worry about setting up an SWP manually or deciding the ideal SWP amount required each month. Here, the entire process is done in an automatic manner which is a part of a one-time process.
To conclude, Freedom SIP is a facility which helps automate your savings and withdrawal during the retirement phase of one’s life. Also, there is a certain amount of predictability in terms of cash flow to meet your day-to-day needs comfortable which is an important feature.
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