Mutual fund investors who are looking for a long-term investment usually take a systematic approach. A systematic investment plan or SIP enables investors to invest on a regular basis.
But rather than signing up for the long term, many investors opt for SIPs for one or two years. And as the term ends, they are meant to go through some paperwork to continue with the SIPs moving forward.
And in case you happen to forget, you may miss out on saving adequate money to meet financial goals, as well as on potential returns. For instance, if your SIP period ended in the early 2020 and you skipped to renew for a few months, one can assess the loss of potential returns in such a scenario. Alternatively, there is a convenient option i.e., perpetual SIP.
What is perpetual SIP?
Under this mode, SIP does not have an end date. To activate perpetual SIP, one has to keep the end-date column blank, while signing up for the mandate form.
Consequently, the standard expiry period is taken as the year 2099. And until then, the AMC will continue to deduct the said amount and invest in the fund. They are apt for young investors in their 20s or 30s since they are expected to invest with a long-term horizon.
But it does not mean that a perpetual SIP will actually continue infinitely. If an investor wants to stop their SIP, the fund house will not deduct the sum anymore.
One only needs to give an intimation about the termination three weeks ahead of the SIP date and it is terminated on its own.
In other words, a perpetual SIP spares you the trouble of paperwork for SIP renewal. One does not need to keep a regular tab on the end of SIP’s period – i.e., after two or three years as the case may be.
It is worth mentioning that merely taking the route of perpetual SIP does not remove the need to carry out a regular review of mutual fund portfolio in order to sell off the underperforming funds. It is also vital to select the appropriate funds for replacing the funds you have redeemed.
Key features of perpetual SIP
There are some key advantages of perpetual SIP compared to a fixed tenure SIP.
First and foremost, long term goals can be achieved only with the aid of investment discipline which can be inculcated by perpetual SIPs. It also fosters a sense of convenience for investors as they do not need to inform the asset management company (AMC) about the expiry of your fund’s tenor.
However, it is vital to note that the investors must maintain adequate balance in their account on a regular basis, particularly on the day of the SIP.
Also, when you are maintaining a perpetual SIP for a specific financial goal, investors must ensure to intimate the AMC beforehand, otherwise – it will continue even after the meeting of financial goals.