Mutual fund investors inspiring to give their investments a systematic approach usually opt for the SIP option. Systematic Investment Plan is a systematic approach where investors can continue investing in mutual funds via electronic transactions.
SIP is a fixed tenure investment plan that goes on for three years or five years, depending on the instructions provided by the investor the AMC. In SIP, a fixed amount is debited from the investor’s bank account on a predetermined date every month and transferred to his / her mutual fund account.
Perpetual SIP, on the other hand, is a type of SIP that targets an investor’s long term investment goal. With perpetual SIP, an investor can continue investing in mutual funds via SIP for as long as they want.
But are there any benefits of investing with perpetual SIP?
As a matter of fact, there are a few benefits / advantages which perpetual SIP has over fixed tenure SIP:
- If you are someone with a long term investment horizon and has to meet a long term financial objective like building a retirement corpus, which may require to remain invested for at least 30 years, perpetual SIP might be a good option.
- Another advantage which perpetual SIP investors have is that they do not have to keep a tab on the termination period of their SIPs, which is the case with fixed tenure SIPs. The default expiry for perpetual SIP is the year 2099. Until then, investors can invest in an easy and hassle free manner.
- Investing with a long term investment horizon needs dedication and commitment towards your investments, and perpetual SIP holds the potential to inculcate the discipline of investing regularly over a period of two to three decades.
Drawbacks of perpetual SIP
Perpetual SIP investment means you continue to invest month after month, year after year, without tracking the performance of the fund. At the time of investment, the mutual fund you invested in might be giving you good returns. However, the consistency of providing returns may or may not continue in the long run. If you continue to invest in a mutual fund continuously without tracking its performance, and if due to some unfortunate reasons, if the fund incurs loses, you will have to bear the financial brunt.
Refer to the following table for understanding the differences between perpetual SIP and fixed tenure SIP:
| Parameters | Fixed Tenure SIP | Perpetual SIP |
| Definition | As the name suggests, these SIPs come with a termination date | Perpetual SIPs do not have a termination date and will technically continue till the year 2099 |
| Renewal | Fixed tenure SIPs need to be renewed depending on the investor’s interests | Perpetual SIPs need no renewal |
| Suitable for… | These are suitable for those investors who want to remain invested for a fixed tenure | These are suitable for investors who have long term financial goals to meet |
The best thing about SIP investments is that whether you select fixed tenure SIP or perpetual SIP, you have the liberty of starting mutual fund investments with an amount as low as Rs. 500. Some mutual funds even have the option of starting SIP with an amount as low as Rs. 300 per month. SIP not only gives your investments a systematic approach but also helps you inculcating the discipline of saving regularly. It teaches you to stay committed to your investments, an aspect which is essential for meeting financial objectives.
No matter where or how much you invest, it is always better that you have a defined financial goal and that you invest in a scheme that has the potential to help you get closer to your goal. An investor must always align his / her financial goal with their investment horizon and risk appetite. This enables you to identify the investment tools and the possible amount you need to invest in order to achieve your financial goals regularly.
