Perpetual SIP – Everything you need to know about Perpetual SIP- How is it different from Normal SIP?

Investors often choose mutual fund investments to remain invested for a longer time period. This requires systematic financial planning and what better way to approach a mutual fund investment than with the SIP option. SIP or systematic investment plan, as the name suggests, allows investors to adopt a systematic approach while investing in mutual funds. In an SIP, an investor invests small amounts of funds periodically into a chosen mutual fund scheme. 

Within the SIP option, there are normal SIPs or fixed SIPs that have a certain expiration date. SIP investment requires investors to instruct their bank about debiting a predetermined amount on a fixed date from his/her bank account to be transferred to the mutual fund investment account. Another option in SIP is ‘perpetual SIP’, which is ideal for investors who have long-term investment goals. Under this, an investor can invest in mutual funds for an unlimited time period or depending on when a particular investment objective is met. 

Here, we will explore the meaning of perpetual SIP along with its benefits, while also trying to understand the difference between normal SIP and perpetual SIP.

Defining perpetual SIP

The term ‘Perpetual’ means forever. The same goes for perpetual SIP, as it is meant to be forever. Suppose an investor invests in a mutual fund for a fixed tenure of 3 years. In this case, he/she has to inform the AMC once the tenure of SIP comes to an end and whether he/she wants to continue or redeem the investment. In case the investor fails to intimate the AMC on time, the SIP will automatically be stopped at the end of the chosen tenure. This can impact one’s financial planning and disrupt long-term goals. 

This is when a perpetual SIP comes into the picture. The perpetual SIP option ensures that investors don’t have to worry about any follow-ups or intimations. These are set for a default expiry in the year 2099. This means the SIP will continue debiting the pre-decided amount to be invested in the mutual fund.

Recommended read – All you need to know about SIPs

What are the advantages of choosing perpetual SIP?

Let’s have a look at some of the main advantages of choosing a perpetual SIP while investing in a mutual fund:

To benefit in the long run, every mutual fund investment requires financial discipline on the investor’s part. This is possible if an investor focuses on long-term goals by adopting an investment discipline rather than concentrating on the amount invested. A perpetual SIP option helps in inculcating this kind of discipline and benefits the investor over a longer time horizon.

Perpetual SIP eliminates the need to keep a tab on expiration dates of SIPs or worrying about intimating the AMC for renewals. This is because perpetual SIP allows the investment to function in an auto mode.

A perpetual SIP also helps in avoiding the need to look after any administrative issues related to an investor’s long-term investment plan.

Additional read – Best Mutual Funds for SIP in 2021

Is normal SIP better or perpetual SIP?

Here’s a look at some of the main differences between normal SIP and perpetual SIP that can help investors analyse which one suits their requirements:

Normal SIP	Perpetual SIP
These have specific end date which means the SIP stops or discontinues debit from the investor’s bank account to mutual fund account.	There is no end date in this option and the investment can continue until the investor attains his/her investment objective.
Investors can choose to renew the investment by intimating the AMC before the arrival of the end date.	Since this option allows investors to continue investing without an investment end date, there is no need for renewal.
Investors who have a fixed-investment tenure can use this option.	Ideal for long term investments that are not time bound and are more objective focused.
Investors must select a specific SIP termination date while enrolling in this option.	No need for a termination date since this is a perpetual investment.

Are there any risks involved in perpetual SIP investment?

Perpetual SIP investment options may pose a certain degree of risk in equity mutual funds. This is because equity fund performance is highly dependent on market movements. If markets go up, the fund performance may go up and in case the markets fall, the fund performance could be negatively impacted. Thus, if an investor is invested in an equity mutual fund through the perpetual SIP option, chances are that the fund performance may drop over time and the investor may not necessarily be aware of the quantum of losses incurred over time. 

Fund performance monitoring becomes easier with normal SIPs that require renewal from time to time. Thus, unless monitored periodically, a perpetual SIP option may backfire rather than benefit.

Important factors to consider while choosing perpetual SIP

One of the main factors to consider while opting for a perpetual SIP is financial discipline or financial plan. Perpetual SIPs can add value to an investment portfolio only with the presence of appropriate financial discipline. Also, it is important to terminate SIPs as per goal timelines. To terminate a perpetual SIP, an investor must give an advance intimation to the AMC. 

Conclusion

To make the most of perpetual SIPs, investors must link them to specific goals by aligning the SIP tenure to the goals. Be it a retirement goal or children’s education, perpetual SIP allows investors to adopt a result-oriented long-term investment approach. Investors must ensure close monitoring of perpetual SIPs for better management of their finances.

FAQs

1. What type of SIP is best?
   Depending on individual financial goals or objectives, one can select between fixed or normal SIP and perpetual SIP. With a normal SIP, investors can have a specific end date, whereas perpetual SIPs let investors focus on financial goals rather than an end date of investment.

2. How to invest in mutual funds?
   To invest in mutual funds, investors can download the Fisdom app on their smartphones. The app allows seamless access to different mutual funds with varying risk-return profiles and investment objectives.

3. Is lump sum mutual fund investment better or SIP?
   Lump sum mutual fund investment can benefit investors with a higher scope of capital appreciation. SIP investment, on the other hand, allows investors to imbibe a financial discipline for attaining specific investment goals.

4. What is the minimum duration of SIP?
   Most mutual funds offer a minimum SIP tenure of 6 months. However, investors can opt for specific tenures based on their investment goals and preferences.

5. Is there a minimum holding time for Mutual Funds?
   The minimum holding period for mutual fund investments depends on the fund chosen and individual investment objectives. Equity mutual funds are ideal for longer investment duration, such as 5 years, whereas debt funds can be considered for short-term investment horizons.Only ELSS funds come with a lock-in period of 3 years.