Systematic Investment Plans (SIPs) are a popular way to invest in mutual funds, where you regularly deposit a fixed amount into the fund at set intervals, providing flexibility for withdrawals. However, have you heard of Freedom SIP? Today, we’ll explain what it is and how to make the most of it.
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Freedom SIP comes into play after your regular SIP ends, consisting of two parts: Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP). In SIP, you commit to depositing a fixed amount over a specific period. For instance, if you choose to invest Rs 10,000 every month for 8 years, you’ll later have the option to pick your SWP plan. If you don’t, the default SWP will be chosen for you.
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Let’s break it down with an example from ICICI Freedom SIP. According to their website, if you invest Rs 10,000 monthly for 8 years, your default monthly SWP will be Rs 10,000. Extend the tenure to 10 years, and that monthly amount increases to Rs 15,000. By following this formula for 30 years, you can receive Rs 1.20 lakh every month.
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Now, there’s a crucial aspect to understand about your Freedom SIP investment. During your SIP period, your money goes into the source plan. When the SIP ends and SWP begins, this money is transferred to a new scheme, known as the target scheme. If the source and target schemes are the same, Freedom SIP won’t apply.
