Leveraging on SIP, STP & SWP and getting closer to your financial goals

The journey of wealth creation can be broken into different phases of accumulation, protection, consumption and finally the stage of passing on the legacy to next generation. In each phase applying a discplined approach

via SIP, STP, and SWP can empower us to build wealth steadily, navigate risks wisely, and transition smoothly from accumulation to distribution, paving the way for a secure and healthy financial future.

How does each instrument serve in different phases of investing:

Phase – 1 (Investing/accumulation): In this phase, investors plant a seed for tomorrow's tree (Financial Goals) through SIPs. Each contribution nourishes their financial future, symbolizing hope and progress. Over time, these disciplined efforts transform into a robust financial asset, illustrating that the seeds planted today will yield substantial rewards for generations to come.

Scenario – Investor A started investing 20k SIP and created a corpus of 1 crore in 15 years. Investor B started investing 15k SIP for his retirement and created a corpus of 2.8 crore in 25 years.

Benefits of SIP – Promotes disciplined investing by encouraging regular contributions, which helps in averaging the purchase cost over time and allows investors to benefit from the power of compounding.

Phase – 2 (Systematic transfer plan): In this phase, investors strategically shift their investments from equity to debt when they are 1 year closer to the goal they are investing in. This strategic rebalancing is to ensure easy liquidity. This tool is very helpful for retirees while using regular SWP, where they can transfer the investment from equity to debt prior to year expenses to ensure feasible withdrawals.

·?????? This phase emphasizes the need for flexibility, showing that thoughtful changes today can lead to more stable and secure financial outcomes.

Scenario – Investor A reached his investment goal and started doing STP of the amount equivalent to his child's annual education expense from equity to debt. Investor B started an STP for an amount equivalent to his annual expenses from equity to debt.

Benefits of STP – Enables investors to manage risk effectively by gradually transferring funds from high-risk to low-risk & high-liquid investments, ensuring stability & liquidity in the portfolio, and this will help cautious investors to transit smoothly from debt to equity in a systematic manner through a staggered investing approach.

Phase – 3 (Systematic withdrawal plan): In this stage, investors enjoy regular withdrawals while ensuring their capital continues to grow. Like harvesting the fruits of a well-tended tree, this phase balances the need for income with the desire for ongoing growth.

·?????? This approach emphasizes sustainability, illustrating that financial planning is not just about accumulation but also about managing and enjoying wealth over the long term.

Scenario – Investor A started taking annual withdrawals from the debt investment account, equivalent to the annual educational expenses, successfully fulfilled all the education funding commitments and lasted surplus corpus at the end. Investor B started doing SWP every month from his debt, equivalent to his monthly expenses. Every year, he increased the SWP by 6% annually to address rising inflation costs, and he lasted his investment account till the age of 73.

Benefits of SWP – Offers a source of regular income, making it ideal for retirees while allowing investors to withdraw funds systematically without depleting their overall investment corpus.

The takeaway:

Investing is a journey: Cultivate wealth with SIPs, navigate transitions with STPs, and reap the rewards sustainably through SWPs. This habit helps you to master the art of investing for a bright tomorrow.