Systematic Investment Plans (SIPs) give investors an affordable and disciplined way to create wealth over time. The reason they have skyrocketed in recent years is due to their simplicity, convenience, and the benefits they offer, such as rupee cost averaging, professional management, diversification, and the power of compounding. The various types of Systematic Investment Plans available such as regular SIP, trigger SIP, step–up SIP, and perpetual sip means there is an SIP for every investor’s needs.
A perpetual sip in mutual fund allows you to stay invested for as long as you want. But what is a perpetual sip exactly? Let’s understand perpetual sip meaning and see how it differs from a normal SIP.
What is a Perpetual SIP?
Let’s start by understanding the perpetual sip meaning. A perpetual sip is a type of Systematic Investment Plan that goes on until you decide to stop it. Normal SIPs have a start date and an end date, that is, a fixed tenure. You contribute a fixed amount of money at regular intervals and at the end of the term, you can either renew your plan or redeem your units. Perpetual SIPs work differently. They do not have an end date, so you can continue to invest as long as you want without having to renew your SIP.
This long and indefinite investment period makes perpetual SIPs a very attractive option for people with long-term financial goals, like building a retirement fund or planning for their children’s higher education. To start a perpetual sip in a mutual fund, one simply needs to leave the SIP termination date column blank in the SIP application form. Terminating a perpetual SIP is also a straightforward process. Investors can submit an SIP closure form to the Asset Management Company (AMC) and the bank, and the SIP will stop.
What is a Normal SIP?
A normal SIP or a regular SIP is the most common type of Systematic Investment Plan. Investors select a start date, an end date, a fixed contribution amount, and the frequency of contributions (weekly, monthly, quarterly) to begin investing in a mutual fund. On the predetermined date, the money gets automatically deducted from the investor’s linked bank account and gets invested in their chosen mutual fund.
The start and the end date define a fixed tenure, which could be as short as six months or as long as decades. This wider flexibility makes normal SIPs appealing to investors with clear, time-bound financial goals such as building an emergency fund in 12 months or saving for a down payment on a house in 4 years.
Key Differences Between Normal SIP and Perpetual SIP
This table should give you a clear idea of the differences between perpetual sip vs normal sip, so you can choose which of the two would be more suitable for your financial goals:
| Factor | Normal SIP | Perpetual SIP |
| Tenure | The tenure of a normal SIP is fixed – it has a clear start date and an end date. | Perpetual SIPs, on the other hand, are indefinite. They lack an end date and continue as long as the investor wants to stay invested. |
| Renewal | If an investor wants to continue their normal SIP, they’ll need to renew it before it terminates. | Since a perpetual sip continues indefinitely, there is no need for renewing it. |
| Suitable For | Investors who have time-bound financial goals or those who wish to stay invested only for a fixed period should opt for a normal SIP. | Perpetual SIPs are ideal for investors with a long-term investment horizon. |
| Termination | A normal SIP ends after the tenure specified by the investor is completed, and no further investments are made until the SIP is renewed. | To terminate a perpetual SIP, investors must submit a written cancellation request to the mutual fund company. |
| SIP Form Requirements | Investors need to fill in the termination date at the time of filling the form to activate a normal SIP. | Investors can leave the termination date column blank in the SIP form, which signifies that the SIP is perpetual and will continue indefinitely until they choose to stop it. |
Benefits and Advantages of Choosing a Perpetual SIP over a Normal SIP
There are many advantages of perpetual sip that make it a more appealing investment option than a regular SIP for some investors. Have a look at some of them:
- Since perpetual SIPs don’t come with an end date, they focus on the long term. The effect of compounding interest is most apparent over a long period, so those who give their investments more time to grow reap much higher rewards.
- The better compounding effect of perpetual SIPs makes them more suitable for long-term wealth creation than normal SIPs.
- One doesn’t have to deal with the hassle of renewing their plans with a perpetual SIP. You can stop worrying about your SIP expiring after a few years and avoid the time-consuming paperwork that comes with renewing SIPs.
- Perpetual SIPs are long-term commitments which encourage investors to build a habit of saving regularly. Discipline is an important trait of financially successful individuals.
- One of the most significant benefits of perpetual sip is the flexibility it provides. Normal SIPs don’t allow you to alter the investment amount or frequency once your SIP is set up without needing a written change request. On the other hand, perpetual SIPs let you change the investment amount as your financial situation changes.
- Perpetual SIPs are also more effective at helping investors realise their long-term financial dreams like building a nest egg for a peaceful retirement.
- Other than these, perpetual SIPs offer the same benefits as a regular SIP, such as disciplined investing, professional management, diversification, convenience, and rupee cost averaging.
Who Should Opt for Perpetual SIP?
Due to their focus on the long-term, perpetual SIPs are ideal for investors with long-term financial goals and a higher risk tolerance. Risk tends to go down over time as the investment horizon increases because time allows investors to ride out the short-term market fluctuations. For example, young investors starting their retirement planning journey can especially benefit from perpetual SIPs.
Since they have a 30 to 40-year horizon, they can take on more risk and simply invest every month without needing to worry about renewing their plans every now and then. Other long-term financial goals such as funding children’s higher education or saving money for a down payment on a dream home can also be effectively supported by the long investment period perpetual SIPs offer. Even older individuals looking to leave behind a legacy for their heirs can take advantage of perpetual SIPs as well. They can accumulate wealth that can be passed onto their future generations, so their loved ones can be financially secure.
An important point to note about perpetual SIPs is that due to their ‘set and forget’ nature, investors sometimes don’t realise the drop in returns or changes in the mutual fund’s suitability to their financial goals. When they choose the fund, it may produce excellent returns, but over time, changes in market conditions, fund management, or the fund’s investment strategy can affect its performance. Investors might continue investing in a fund that no longer meets their needs or delivers poor returns. That’s why it’s important to review the fund’s performance regularly.
Conclusion
The main difference between regular and perpetual SIPs is that a perpetual SIP lacks a termination date, which means it goes on for as long as you want to stay invested. This makes a perpetual sip in mutual fund ideal for investors with a long-term investment horizon, and for those not wanting to deal with the hassle of renewing their SIPs.
Before making a choice between the two it’s important to assess your financial situation, and consider your goals and risk tolerance. An investment advisor can help you by analysing your financial needs and giving you personalised advice about which SIP option aligns best with your financial goals and risk profile. They can give you advice on suitable mutual funds, monitor the progress of your investments, and also suggest adjustments as needed so that your investment strategy stays on track.
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