Every investor has to undergo various cycles of the investments i.e. accumulation, transaction & withdrawal phases. To have a better understanding, let's go deep into all these phases.
- Accumulation phase: This is usually happens to be the first phase under which your investment gets accumulated & grows over a period of time. During this phase, you can invest via lumpsum/SIP/STP for your financial goals. The time horizon generally recommended under this phase is medium to long term. This is the stage where you invest to generate decent returns from equity/hybrid asset class, which are assumed to take care of your future goals. The earlier the accumulation period is in your life, the more advantages you will have due to the power of compounding. This is the corpus creation phase. The journey of investment is very boring and never be smooth & linear. You face a lot of volatility, uncertainty, pain, fear & greed.
- Transaction phase: This is a middle phase in which you start moving towards conservative (debt) asset class from aggressive (equity) as your goals approaching nearby. Usually, this phase should be of 5 years for the smooth transaction from one phase to another. This is the corpus maintenance phase. You certainly need the help of your advisor in this phase to get your transaction smooth. One small mistake proves to be very costly in this phase and the focus is not on return generation but to reduce aggression in the portfolio by maintaining the corpus accumulated.
- Withdrawal phase: During this phase, you start withdrawing the income from the accumulated corpus and fulfill your financial goals. You have the option to withdraw lump sum or SWP way to have periodic cash flow. This is the corpus consumption phase. You need to take care of inflation in this phase in case of the monthly withdrawal option as mostly you part the funs on the debt side. Depending on the goal, this phase is shorter (marriage goal), medium (education goal) or longer (retirement goal).
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