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Should you opt for a fixed period SIP or a perpetual SIP?

When you opt for a systematic investment plan (SIP) of a mutual fund, the form gives you a choice. You can either opt for a fixed tenure SIP or you can opt for a perpetual SIP. What is meant by perpetual SIP and how can we compare and contrast perpetual SIP vs normal SIP. Is there any way how to stop perpetual SIP in case you do not want to continue with the same? Let us look at the concept of perpetual SIP in greater detail.


What exactly is a perpetual SIP

The perpetual SIP is designed to go on forever. For example, if you opt for a fixed tenure SIP like 3 years or 5 years then you need to inform the AMC at the end of the tenure of SIP if you want to continue the SIP or not. In case you do not intimate the AMC well in advance about renewal, the AMC will stop the SIP on the completion of the tenure. This could disrupt your long term plans especially if your SIPs are pegged specifically to your long term goals. The answer could be a perpetual SIP. Once you select the perpetual SIP option then you do not have to do any follow up. The default expiry for perpetual SIP is the year 2099. Till then, this SIP will automatically debit the said amount and invest in the fund.


What are the benefits of perpetual SIP?
The perpetual SIP offers you 3 distinct advantages compared to a fixed tenure SIP:

When you are looking at long term goals over the next 20-25 years then the discipline of investing is more important than the amount invested. In such cases, the perpetual SIP will be a better product to ensure this kind of discipline. Use SIP calculator to know your monthly amount.

When you undertake to invest via a perpetual SIP, you do not have to keep a tab on when SIPs are expiring and intimating your fund about renewing the same. All these things are done on auto mode.

In the midst of your busy life style, a perpetual SIP can save you the hassles of monitoring the administrative issues pertaining to your long term plan.

What you need to take care when you are in a perpetual SIP
When you are doing a perpetual SIP, there are some basic things that you need to remember. Here are 3 such things that you need to take care of

The perpetual SIP will go on for a long time. Normally, perpetual SIPs are done through ECS services only. Ensure that you have the funds standing in your account on the day of the SIP. In case of ECS there is no advance intimation like a cheque.

When you are pegging your perpetual SIPs to specific goals, ensure that you intimate your fund well in advance to terminate the SIP. In the absence of that, the SIP will go on beyond your goals.

Since perpetual SIPs are a long term commitment monitor the performance of these SIPs very closely and carefully. If SIPs are not living up to your requirement, then you need to intimate your fund well in advance to stop the SIP.

Perpetual SIP: Whom does it suit and whom it does not?

A perpetual SIP is  suited to young savers who are just in their late 20s or early 30s and who have a long time to run the SIP. In such cases, the perpetual SIP instils automatic discipline in investments. However, if you are close to retirement then any SIP should strictly be for limited tenures only. Perpetual SIP does not really add any value in such cases.


Do you actually require perpetual SIP at all?

If you can maintain discipline around your financial plan then perpetual SIPs do not really add much value to you. On the other hand, you need to ensure that your SIPs are terminated ahead of goals. Of course, terminating a perpetual SIP is not very difficult. You just need to give advance intimation about the termination 3 weeks ahead of the SIP date and the SIP is automatically terminated. However, the last thing you want is some SIP debits to slip into your bank account when you have not prepared for it. That is an unnecessary black mark on your credit standing and is best avoided.


The best way is to link your SIPs to your goals. Align the tenure of the SIP to your goals. Whether the goal is about retirement, child’s education or your home loan margin; you are better off if your SIP tenure is aligned to the goals. The problem with perpetual SIPs is that they become too random and need to be monitored very closely. If you can manage, just avoid opting for perpetual SIPs.

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