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What Is Perpetual SIP And When To Opt It?

What Is Perpetual SIP

What Is Perpetual SIP?

When you start investing in a mutual fund scheme through systematic investment plan (SIP) mode, you get the option for how long you want to continue your investments – 3 years, 5 years, 10 years, or perpetual? It means that, opting any of this options will let your investments amount debited from your bank account through Electronic Clearing Service (ECS) mode for that particular time and will automatically get stopped after the completion of your selected term. However, while opting a perpetual option, your investments will continue for the lifetime. To stop it, you need to inform the AMC by filing up a closure form.

What is Perpetual SIP?

“Perpetual SIPs refer to those with no tenure end date. Most fund houses assume such SIPs to continue till 2099 unless you give specific instruction to stop them. These SIPs are aimed at ensuring continuity and investment discipline for those who are too busy or too undisciplined to renew their SIPs."

When to opt for perpetual SIP?

After opting this mode of investment in mutual fund, you have to cautiously monitor your funds performance from time to time. It is because most of the investors fail to keep watch on their fund’s performance and eventually, loose returns over the long-run.

As the performances of mutual funds can deteriorate for various reasons, such as changes in fund management or investment objective, a perpetual SIP without regular monitoring would lead to continued investments in an underperforming fund. 

“One should opt for perpetual SIPs only if he or she is able to review the performance of his funds at least once a year."

When not to opt perpetual SIP?

SIP’s are highly flexible in nature and can be stopped and restarted anytime as per your convenience. It makes little sense to start perpetual SIP’s close to or after your retirement, as it’s quite likely that you won’t be continuing with the SIP’s for an extended period of time.

Once you get retired, you’ll need to re-look your over all portfolio in order to reduce the risks and volatility, and will most likely have to start drawing upon the accumulated corpus regularly or frequently. You may also need to start Systematic Withdrawal Plans (SWP), which are in effect the reverse of SIP’s, once you retire and don’t have a steady source of income to fall back upon.

The best way to go for an SIP in mutual funds

The best way start your SIP in a mutual fund is to link it with a well defined financial goal. This simple idea will ensure that your SIP continues for long enough to compound and create value. You can also opt for the exact date to start and stop your SIP while filling up your mutual fund investment documents instead of selecting the predetermined date or perpetual mode.

over all, the idea of linking your SIP’s to your financial goals ensures that you automatically invest in an asset class that’s appropriately suited to your time horizon. Additionally, it’s important to not try and ‘time’ your SIP investments, but rather let the markets take their own course by allowing your SIP installments to get debited in a disciplined manner. In doing so, you’ll end up benefiting from the volatile ups and downs of the markets.

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