By 2031, the population of people more than 65 years old is expected to grow the fastest (75%) among all the age groups. The only way to ensure a safety net for the golden years is by fast tracking financial freedom by investing as much money as early and frequently as one can. It is necessary to create a stream of passive income which will take create of one’s lifestyle needs. Hence, a goal like retirement planning should be well thought out. Investors, in general, tend to overestimate the ability to create the required nest egg. This is largely because purchasing power of money decreases over the years.
As a means to help address all of these requirements, ICICI Prudential Mutual Fund has made available to investors features like Freedom SIP, Freedom SWP and more recently the fund house has launched an industry first feature known as Booster STP.
What is Freedom SIP?
Stage1: SIP will be registered into an open ended equity, hybrid or fund of funds scheme for a pre-defined period of 8 years, 10 years, 12 years or 15 years under a monthly frequency.
Stage 2: On completion of the chosen SIP period, the units accumulated through Freedom SIP are transferred to a pre-selected target scheme which is mostly a hybrid fund. This ensures the corpus generated over the years is not exposed to the undue risk which the equity market presents.
Stage 3: Post the transfer, a systematic withdrawal plan popularly known as SWP is activated. If an SIP is registered for 8 years, then the monthly SWP installment is 1x monthly SIP Installment. In case of 10, 12 and 15 years, the withdrawal is 1.5x, 2x and 3x respectively. For example: If initial SIP registered for tenure of 12 years is Rs. 10,000 per month , then SWP will be Rs 20,000 (2X Rs. 10,000).
Freedom Systematic Withdrawal Plan (SWP)
While the expenses keep on growing due to Inflation, the cash flow from traditional SWP remains constant, resulting in huge gap in expenses v/s cash flow, as the time progresses. This is where ICICI Prudential Freedom SWP will help address the gap which is being created. Through this feature, investors can withdraw a fixed amount i.e. 6% p.a. from investment corpus along with an option of Yearly Top Up of either 3%, 4% or 5%. Here, investors can register for monthly withdrawals only.
Under this feature, investors will make a lump sum investment in any of the eligible schemes, which are mostly from the hybrid category. These schemes aim to benefit from volatility and manage equity exposure based on valuations. Thereafter, one has to make two choices - Top up percentage and SWP start date. The SWP of 6% per annum will be calculated on the basis of the lump sum invested. Through this arrangement an investor can ensure that he/she can maintain a certain lifestyle over the years.
What is Booster STP?
Here two parameters – amount and duration - is variable in nature, unlike the traditional STP where both these parameters are fixed. The core idea behind a Booster STP is to help an investor accumulate more units when the market is cheap and vice versa. If an investor has opted for say a base STP amount of Rs. 10,000 each month, then depending on the market condition, the STP amount can vary in the range of 0.1-5X of base STP amount i.e. Rs 1,000 to Rs 50,000. The power of variable tenure helps divides investment corpus such that market opportunities can be tapped efficiently.
