Have You Tried freedom Sip Yet?

We are all aware about the benefits of systematic investment plan (SIP) and systematic withdrawal plan (SWP) offered by mutual funds. Most often, investors use these as a standalone feature in their portfolio. But have you wondered how a combination of these two will help you streamline not only your wealth creation but also your wealth distribution procedure? Let us call this ‘Freedom SIP’. With the help of this SIP, investors have the opportunity to design and create their monthly income plans for their future and also address their different long-term financial needs. 

These needs could include children’s education fees or simply creating a monthly income plan for taking care of your regular expenses during the retirement years. Freedom SIP works at multiple levels. Initially, an investor invests systematically (SIP) for a particular number of years and later initiates SWP from the corpus created over the years. Here, investors can have the freedom to choose the SIP scheme, the SIP tenure and choose the desired SWP amount. It can help investors achieve their dreams in a systematic way and make their future stress-free. 

Investors can initiate SIP for tenures ranging from 8 - 30 years. Given the long-term nature of investments, investors can opt for equity mutual funds. Once the SIP tenure is over, the wealth so created is then shifted to another fund. This fund is known as the target fund. Target fund should either be hybrid or Debt Fund in nature. The aim of the target fund is to protect the corpus created from equity market volatility. Along with the SIP amount and SIP scheme, an investor at the time of investing should mention the target fund desired as well. 

When it comes to choosing the SIP scheme and the target scheme, investors have the flexibility to choose from a wide variety of schemes. It is from the target fund that SWP is initiated. Investors at the time of singing up should mention the desired SWP amount. If the SWP amount is not mentioned, the investor will receive the default SWP amount. This amount varies on the basis of the SIP amount and the SIP tenure opted by the investor. For most AMCs, longer the tenure of SIP investment, higher is the SWP amount.

For example, if an investor starts an SIP of Rs 10,000 per month and has SIP tenure of eight years, the default SWP amount is Rs 10,000. If the SIP tenure is of 15 years, a similar SIP would have yielded a default SWP amount of Rs 30,000 i.e. triple the SIP amount. The beauty about the feature is that it enables goalbased investing and inculcates a habit of long-term investing. Through this feature, one can ensure that a sizeable sum remains invested at all times and benefits from power compounding, thereby creating more wealth over time. 

This enables an individual to leave a large chunk of the corpus for the nominees as well. Such offerings are provided by some fund houses. Before signing up for such a feature, always remember to check the finer details of the offering as the details may vary from fund house to fund house. It is pertinent to note that the default monthly SWP payouts do not guarantee, assure, promise or indicate fixed returns or performance of any schemes of the AMC. All these features have been made possible because of the advancement in technology. Before starting any long-term commitments, especially when it comes to investing, it is best to seek the guidance of a financial advisor. 

Rajendra Bhatia
Managing Director, Arthashastra Investments (P) Ltd. 

The writer is Managing Director of Arthashastra Investments (P) Ltd.
■ Email : rb@aarthashastra.com ■ Website : www.aarthashastra.com