SIPs: Perceptual SIP Benefits & Drawbacks – Axis Direct
Apr 25, 2018 | Source: ET Bureau
Perceptual SIP Pros and Cons
Retail investors have taken a fancy to investing in mutual funds through systematic investment plans (SIPs). One way to take advantage of SIPs in a true long-term manner is to opt for a perpetual SIP.
1. What is a perpetual SIP?
In an SIP, you make periodic investments in a mutual fund scheme of your choice generally every month for pre defined tenure. While signing up an SIP mandate, you have the option to leave the end-date column blank. If the column is blank, it means the investor has opted for a perpetual SIP.
Most fund houses assume this SIP will continue till December 2099 unless you give a written communication to stop it.
However, some fund houses require you to tick the 'perpetual option'.
2. What are the advantages of perpetual SIPs?
Registering an SIP involves a lot of paperwork and it takes time.
It is observed that many investors skip their SIP installments when they go for short-tenure options. Distributors point out that investors tend to delay renewals due to operational hassles and end up missing a few installments.
This affects the returns in the long term, breaks discipline, and prevents investors from meeting their financial goals. Perpetual SIPs help you maintain continuity.
3. Who should opt for a perpetual SIP?
A perpetual SIP is more beneficial for younger people. For example, a 25-year-old can continue an SIP for at least 30-35 years without disturbing the investment flow.
So, he could opt for a perpetual SIP. However, a 55-year-old working person would want to review his investments once he retires and may not necessarily want to opt for SIPs post retirement.
4. Are there any drawbacks of perpetual SIPs?
Performance of an equity fund could vary due to various reasons such as a sharp jump in corpus and change in fund manager. So, you may notice that at the time of selecting a scheme, the fund performance was good, but it dropped over a period of time.
If you had enrolled in a perpetual SIP, you would invariably keep putting in more money , month after month, without realizing that the performance of the scheme is deteriorating. In smaller-tenure SIPs, you should monitor performance before renewing the SIP mandate.