What is perpetual SIP in mutual fund?

Any successful investor will tell you that investing is a long-term game, one that requires patience and perseverance for the best outcomes. And one of the best ways to achieve long-term financial goals is through systematic investment plans (SIPs). SIPs are a popular investment vehicle that involves investing a fixed amount of money, at regular intervals, in a mutual fund, enabling you to average out the cost of your investment. In addition, SIPs also offer the benefits of compounding and staggered investment, making this route the best means to reducing risk and potentially increasing returns over the long term. If you are ready to be a long-term investor keen on building a nest egg for a far-off future, you should consider investing in perpetual SIPs. Keen on knowing what is perpetual SIP meaning in mutual funds? Here is everything you need to know.

Advantages of perpetual SIP

Normal SIPs have a finite time horizon, typically ranging from a few months to a few years. Once the SIP period is over, you would have to decide whether to continue investing in the same mutual fund or switch to a new one. Enter the perpetual SIP, an investment strategy that offers long-term investors a seamless, unending investment solution. As the name suggests, perpetual SIPs have no end date, allowing you to continue investing in the same mutual fund for as long as you want. Some of the major advantages are as follows –

• Long-term investment: A perpetual SIP allows you to invest in a mutual fund for the long term, without having to worry about the SIP end date. This approach is ideal if you are an investor who is looking to accumulate wealth over time. It also helps you continue your investment without the voluminous paperwork involved in starting a new SIP.

• Flexibility: Unlike normal SIPs, which have a fixed end date, a perpetual SIP enables you to remain invested in the same mutual fund scheme, as long as you want, thus offering you greater flexibility as you have the option of altering your investment amount or stopping the investment at a time of your convenience.

• Rupee cost averaging: Perpetual SIPs, which are maintained for the longer term, enable you to average out the cost of your investment. This is because your SIP ends up buying more units in a negative market, which then becomes profitable when the market invariably turns upwards at a later stage. This approach helps to reduce the impact of short-term market fluctuations and can potentially increase returns over the long term.

• Compounding: Investing in a perpetual SIP enables you to benefit from the power of compounding, which is the process of earning interest on interest previously earned. This can help your investment’s value grow significantly, over a period of time.

• Convenience: With a perpetual SIP, you do not need to worry about renewing your SIP every few months or years. This approach is convenient as it can help you automate your investments and focus on your long-term financial goals.

• Financial Discipline: Investing in a perpetual SIP will prompt you to save a pre-decided amount of money every month and, over time, this habit will empower you and help you become financially independent.

Drawbacks of perpetual SIP

Perpetual SIPs offer you a bevy of benefits but there are also some drawbacks that you need to consider – 

• Market risk: Every market-linked investment carries a certain amount of risk and, with a perpetual SIP, you may be exposed to this risk for the long term, so it is important to monitor your portfolio regularly.

• Limited diversification: Since perpetual SIPs allow you to stay invested in a single scheme, for a long duration, your portfolio diversification may get limited by this approach.

• Interest rate risk: Perpetual SIPs may be more vulnerable to interest rate risk, which has the ability to affect the returns on mutual funds. When interest rates rise, the value of existing bonds or fixed-income investments may fall. This can lead to a decline in the value of mutual funds invested in such instruments.

• Fees and Expenses: Mutual funds charge fees for managing the fund. While these fees are typically low, they can add up over time and reduce the overall return on investment.

Perpetual SIP vs Normal SIP – Key differences

The primary difference between normal and perpetual SIPs is the duration of the investment. While the former has a fixed duration, the latter can continue indefinitely. Secondly, investors typically invest a fixed amount of money, at regular intervals, when opting for normal SIPs but, with perpetual SIPs, you can adjust the investment amount or stop investing at any time. Perpetual SIPs do not need renewals whereas normal SIPs require you to renew your SIPs after expiry. In terms of the risk factor, perpetual SIPs carry market risk for longer than normal SIPs, owing to the longer duration.

In conclusion, perpetual SIPs have their own sets of advantages and drawbacks and you should choose the option only if it aligns with your time horizon and financial goals.

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