What Is Perpetual SIP? Meaning, Benefits & Risks

Whenever you are investing in mutual funds through an SIP, you are required to define the duration for which you want to continue your investment. But there can be times when you are not sure about the duration of investment; in this case, you can go for a perpetual SIP.

In today’s blog post, we will give you an overview of a perpetual SIP and its key benefits and risks associated with it.

What is Perpetual SIP?

Perpetual meaning in mutual fund is a type of SIP in which the investor does not specify a date to close the SIP. Perpetual SIP meaning is you choose the SIP amount and frequency, and the investment continues automatically until you decide to pause or stop it. This approach is useful for the investor who wants long-term investment and does not have a specific date by which they need to stop investing; this allows them to maintain discipline. 

Features of Perpetual SIP

The key features of perpetual SIP are as follows:

• No End Date: The key feature of perpetual SIP is that it does not have an end date, and the SIP continues until the investor chooses to stop it.
• Discipline: As the investment is made at regular intervals in a perpetual SIP, this helps an investor maintain discipline instead of trying to time the market.
• Pause or Stop: In a perpetual SIP, the investment continues for a longer period of time. However, the investor gets an option to pause or stop their SIPs.
• Compounding: The key benefit of SIP is that if the investments are continued for a longer period, investors may get the benefit of compounding.
• Rupee-Cost Averaging: As a fixed amount is invested on a periodic basis, the investor purchases more units when the prices are low and fewer units when the prices are high; this helps in maintaining the average purchase cost over time.

How Does Perpetual SIP Work

The working process of perpetual SIP is as follows:

• Selection of Scheme: The first step towards starting a perpetual SIP is to identify the mutual fund scheme in which one wishes to invest. The scheme selection should be based on factors such as investment objective, risk profile, etc.
• Choosing the SIP Amount: Once the investor selects the mutual fund scheme, they should choose the SIP amount which one can invest regularly.
• Frequency of SIP: The investor is required to select the frequency of SIP; it can be monthly, quarterly, etc.
• Setting Bank Mandate: A bank mandate allows the SIP amount to be deducted from the investor’s bank account on the selected date. Setting up a mandate is necessary to start an SIP.
• Perpetual SIP: While starting an SIP transaction, the system asks for the SIP end date, with the frequency set to perpetual. This perpetual frequency means that there is no predetermined end date for the SIP.

Example of Perpetual SIP

Mr A, who is 25 years old, wanted to start an SIP of INR 10,000 for creating wealth in the longer run. But he is not sure when to stop this SIP, so while initiating the SIP, he chooses the frequency as monthly and the duration as perpetual. In this case, there is no fixed date to end the SIP. But if Mr A wants to pause or cancel his SIP, he has the option to do so.

Difference Between Perpetual SIP and Regular SIP

The key differences between Perpetual SIP and Regular SIP are as follows:

Particulars	Perpetual SIP	Regular SIP
End Date	There is no end date in a perpetual SIP.	The end date is fixed in a regular SIP.
Investment Duration	No fixed investment duration in a perpetual SIP. It continues until the investor stops it.	Regular SIP continues until the selected tenure.
Renewal	There is no requirement for periodic renewal.	Renewal may be required after the end period.
Suitability	Investors who want to continue investing without deciding an end date.	This is suitable for investors who have a defined investment period.
Discipline	Perpetual SIP encourages regular investing over an open-ended period.	It encourages regular investing over time.

Benefits of Perpetual SIP

The key benefits of perpetual SIP are as follows:

• Regular Investing: The perpetual SIP is an automated way of investing in mutual funds for an indefinite period of time. It encourages investment discipline through regular investing.
• Rupee Average Cost: As a fixed amount is invested at a periodic interval, it helps an investor purchase more units when prices are low and fewer units when prices are high. It helps average the purchase cost of a mutual fund.
• Flexibility: There is no fixed end date for investing. However, a Perpetual SIP can be modified, paused, or cancelled at any time. 

Read Also: Floater Debt Funds: Benefits, Risks & Taxation in India

Risk of Perpetual SIP

The key risks of a Perpetual SIP are as follows:

• Market Risk: Through a perpetual SIP, an investor invests their money in market-related securities, the performance of which is dependent on market conditions. There can be short-term volatility in the portfolio.
• Behavioural Risk: The perpetual SIP continues for a longer period of time. However, investors may be tempted to pause or cancel their SIPs during a market downturn. This can significantly impact the overall investment outcome.
• Reviewing the Fund: A perpetual SIP continues for a longer period of time, but there can be certain cases when investors continue their SIP without reviewing the performance of the fund.

How to Stop, Pause, or Modify a Perpetual SIP

The process to stop, pause or modify a perpetual SIP is as follows:

• Login: The first step is to log in to the mutual fund investment platform through which you are investing.
• SIP Section: There will be a general mutual fund section in which one can find the SIP section.
• Selecting the SIP: If you have various perpetual SIPs going on, then you need to select the SIP which you can pause or cancel.
• Confirmation: After selecting the SIP and transaction type such as pause or cancel, you will be asked to enter an OTP to verify the same. The OTP will be sent to the registered mobile number and email ID.

After completing the above process, your SIP will be stopped or cancelled. 

Factors to Consider Before Starting a Perpetual SIP

The key factors that one must consider before starting a perpetual SIP are as follows:

• Investment Objective: One needs to identify their investment objective or goal. A perpetual SIP can be used for goals such as wealth creation, etc.
• Risk Appetite: The fund in which you are starting your SIP must be according to your risk appetite. As equity funds are highly volatile in nature, one must select the fund according to their risk appetite.
• Periodic Review: As the perpetual SIP continues for an indefinite period of time, it does not mean that you simply invest and forget. An investor regularly checks their SIP performance. 

Read Also: What Is IDCW in Mutual Funds and How Does It Work?

Conclusion

On a concluding note, a perpetual SIP is a method to build wealth in the long run in a disciplined manner. A perpetual SIP allows an investor to continue their investment for an indefinite period of time, and it also helps them to have the benefit of rupee cost averaging and compounding. However, one must understand that having a perpetual SIP in their portfolio does not mean it guarantees returns. Therefore, it is advisable to consult your investment advisor before starting a perpetual SIP, and it should be in accordance with the investment objective and risk profile of the investor. 

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