Financial Freedom is the status of having enough income to pay one's living expenses for the rest of one's life without having to be employed or dependent on others. Income earned without having to work a job is commonly referred to as passive income. And to achieve financial freedom, the investor needs to invest regularly in a disciplined manner through SIP for a prolonged period of time.
SIP is the mode of investments in mutual funds that allows the investor to achieve their financial goals. When SIP combines with SWP at the time of withdrawal in a systematic manner (not at one go), it serves the purpose of lifetime annuity as well. This combined feature encourages the investor to invest regularly in a disciplined manner through Systematic Investment Plan (SIP) and enjoy the benefits of regular cash flows via Systematic Withdrawal Plan (SWP) post completion of SIP period thereby aiming for financial freedom aka Freedom SIP.
Freedom SIP comprises three processes:
(1) Source scheme (SIP): SIP to get registered into equity (aggressive fund) for a pre-defined period of say 10 years,15 years, or 20 years under the monthly frequency.
(2) Target scheme (Switch): On completion of the chosen SIP period, the units accumulated through SIP need to be transferred to the selected target scheme i.e. hybrid asset allocator fund (conservative fund).
(3) SWP: Post the transfer, SWP is to be activated for an amount which is as per the matrix below.
For example: If initial SIP registered for the tenure of 15 years is Rs. 10,000 p.m., then SWP will be Rs 30,000 (3.0 X Rs. 10,000).
Conclusion:
One can opt for Freedom SIP because:
- No market timing issue as entry (SIP) & exit (SWP) both are in a systematic mode
- No worry about when to book profit or redeem from the scheme
- Inculcate the habit of long term investing as you are not chasing the return
- Don’t worry about market movement – high/low - as your goal is fixed. One has to remain disciplined throughout their investment journey
- No need to chase return any more
- Goal-based investing always pays off
- A good source to create passive income for lifetime
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