Thursday, Aug 11, 2022 08:45 [IST]
Last Update: Thursday, Aug 11, 2022 03:04 [IST]
Time and again, financial gurus highlight the importance of disciplined investing and having the best of financial hygiene. The steps to be followed are quite simple in theory – earn, cover basics like protection needs and emergencies, invest for long-term financial goals and then spend the rest. However, when it comes to implementation, investors falter. One of the best ways to implement disciplined investing is through systematic investment plan (SIP).
What is SIP?
Simply put, SIP means that you invest a fixed amount periodically on a continued basis in a mutual fund scheme. The SIP frequency can be weekly, monthly or even quarterly. Effectively, this leads to a disciplined investing habit as the investment loop continues regardless of the market conditions. In other words, SIP eliminates the friction caused due to emotional interventions in investing such as greed or fear.
What is ICICI Prudential Freedom SIP?
In this feature, you start with a monthly SIP for a tenure of your choice. The tenure options available are 8, 10, 12, 15, 20, 25 or 30 years. At this stage an investor has to choose the mutual fund scheme of one’s choice in which the SIP will be initiated. Given the long-term nature of investment, the ideal choice would be an equity fund. This will be known as the source scheme.
Once that tenure is complete, the amount accumulated over time will then be switched to another scheme which will be known as the target scheme. The scheme to which the switch will occur has be chosen beforehand by the investor. The options available here will be either a debt or a hybrid fund given that safety of capital becomes very important. Post the switch, monthly payouts will be initiated from this corpus. The payouts are enabled through a Systematic Withdrawal Plan (SWP) from the target scheme.
With Freedom SIP, you can receive a monthly payout ranging from 1x to 3x of your monthly SIP amount depending upon the SIP tenure you choose. For an SIP tenure of 8 years, the monthly SWP installment will be 1x. Similarly, for 10, 12 and 15 years, the SWP installment will be 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 (2.0 X Rs. 10,000).