5 Major Differences between Fixed SIP and Perpetual SIP

Mutual fund investors who wish to remain invested for the long run and want to give their investments a systematic approach usually opt for the SIP option over lumpsum investment. Systematic Investment Plan is a systematic approach where investors can continue investing in mutual funds via electronic transactions. SIP is usually a choice of several investors because you need to personally look into your investments every month. SIP electronically does the job for you in an easy and hassle free way.

Many of you may not be aware but the normal SIPs or what are called fixed SIPs come with an expiration date which is usually the year 2099. When you invest in mutual funds through SIP all you need to do is instruct your bank and every month on a predetermined date a fixed amount is debited from your savings account and transferred to your mutual fund. There is something called as ‘perpetual SIP’, which is another type of SIP investing 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 or till their investment objective is achieved.

Are there any benefits of investing in mutual funds with perpetual SIP?

Here are some of the benefits which perpetual SIP has over fixed tenure SIP:

• Investors with a long term investment horizon who have to meet long term financial goals like building a retirement corpus or saving enough to secure their child’s future, or any financial goals which may require them to remain invested for at least 30 years, perpetual SIP may prove to be a feasible investment option.

• Another good thing about perpetual SIP is that investors do not have to keep a close tab on the termination period of their SIPs, which is the case with fixed SIPs. Perpetual SIP has no termination date and hence investors have the liberty to continue investing in mutual funds through perpetual SIP till their investment objective is achieved.

• We all know that investing for the long run needs dedication and commitment. You may need to have a disciplinary approach towards your investments, and perpetual SIP holds the potential to inculcate this discipline of investing regularly.

Are there any drawbacks of perpetual SIP?

When you start investing in mutual funds through perpetual SIP, you are automatically investing continuously month after month, year after year. You may miss out on tracking the fund’s performance while investing this way. When you initially start investing, the mutual fund scheme you invested in might be giving you returns as per your expectations. However, the consistency of providing returns may or may not continue in the long run. And, if you continue to invest in a mutual fund without tracking its performance, and if due to some unfortunate reasons, if the fund keeps underperforming, you will have to bear the financial brunt and face losses.

Here is a table that may help you understand the difference between perpetual SIP and fixed tenure SIP:

The best thing about SIP investment is that whether you select fixed tenure SIP or perpetual SIP, you have the liberty of starting mutual fund investments with small investment amounts. SIP not only gives the investments a systematic approach but may also help an investor in inculcating the discipline of saving regularly. It may teach an investor to remain committed to his/her investments, something that is essential for meeting long term financial goals. When you invest in mutual funds via SIP, you may also benefit from compounding and rupee cost averaging.

Remember that investing is a long journey and you must try and not give up in between if you really want to experience the pros of SIP investment. Remember that mutual funds like equity mutual funds only show expected results when you remain invested in them for the long run. So make sure that you align your investments with your risk appetite, investment horizon, and your existing liabilities and most importantly align it with your financial goal. Also, if you are someone who is completely new to mutual funds and do not understand financial planning, it is better that you seek the help of a financial advisor or a mutual fund expert.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.