To build long-term wealth, investing through a Systematic Investment Plan (SIP) in mutual funds has a lot in common with the old proverb “little drops of water make a mighty ocean”. In other words, making small but regular investments with a focus on your goals can help you unlock the doors to financial freedom.
Every investor must first acknowledge that investments serve the purpose of assisting with attaining future financial goals. And, thus, SIPs are more like solution providers. A solution-based SIP helps you remain goal-focused, maintain your wealth-creation path and, most importantly, develop a disciplined investment habit. If your investments are not goal-based, whatever your SIP amount or tenure length, you will lack discipline and patience. This may take away the wealth-creation potential of your investments as you become more likely to make common investing mistakes.
ICICI Prudential Freedom SIP is an innovative add-on feature that blends a SIP and SWP to assist investors in reaching their financial goals offering a goal-based planning solution. Thus, Freedom SIP is nothing more than a solution-based investment strategy. The process is completely hassle-free. Essentially, it works in three stages: (1) grows your wealth through the SIP route for the tenure you choose, (2) allows you to switch to the target scheme post the tenure and (3) lets you reap the benefits as a monthly income through SWP. The monthly withdrawal is in multiples of the SIP amount.
Freedom SIP, an optional feature, allows you to choose a tenure of 8, 10, 12, 15, 20, 25 and 30 years, depending on your objectives. For instance, if your SIP is Rs 10,000 over 8 years, the Freedom SIP feature will allow you to withdraw Rs 10,000 per month on a regular basis. If the tenure is 10 years, the withdrawal will be 1.5 times the SIP instalment at Rs 15,000. From the tenure period of 12 years onwards, the monthly withdrawal will rise in multiples ranging from 2 times or Rs 20,000 to 12 times or Rs 1.2 lakh for an SIP duration of 30 years.
How can Freedom SIP help you achieve goals?
During the chosen tenure, an investor is in a phase of unit accumulation. This is a crucial stage of investment as your money grows over time and, at the same time, your cost is averaged across various market conditions. Essentially, investors see wealth creation during this initial stage.
Once the SIP tenure has ended, it is often difficult for investors to decide how to carry forward the accumulated amount. Either they redeem the entire sum or leave it as it is, which could be risky given the approaching goals. It is here that the second phase of the feature begins. The accumulated sum is smoothly switched to a target plan. Typically, the target scheme is a hybrid or relatively low-risk investment that adds a growth element to the portfolio. The objective here is to conserve the corpus created to comfortably meet one’s financial goals. The convenient automatic switching saves investors time and effort.
Then comes the final stage when investors are set to reap the benefits of their investments by systematically withdrawing funds through SWP. Here, you need not redeem all units at one go, but instead opt for a disciplined monthly pay-out. This will ensure that only the required number of units is redeemed, while the rest of the units can continue to grow in value over time. Here, to meet one’s financial needs, the monthly outflow in this case is akin to creating a separate stream of cash flow, which is also why investors can comfortably and confidently experience a sense of financial freedom. Often, investors mismanage large sums of money, which Freedom SIP’s systematic withdrawal phase protects them from. The resultant impact of all these steps through the Freedom SIP feature is that investors can experience wealth creation, distribution, and withdrawal in a seamless manner, thereby leading to a happy investment experience.
