Should you start a Perpetual SIP?

A Perpetual SIP, as the name suggests, continue as long as you are around. Typically, when you are filling up a form (paper or online), you have to specify start and end date for SIP. If you select Perpetual option, the end date is typically for the year 2099. That is as good as forever.

So, should you go for perpetual SIPs?

To be honest, this is an aspect I do not hold a very positive or negative opinion about. I will list down a few pros and cons and leave it to you to decide.

What are the benefits of a Perpetual SIP?

One of the reasons why various investors struggle with financial investments is inertia.

It is not uncommon to see people not starting a planned investment just because they did not have time to fill up and sign a form. Or they did not have time to visit CAMS/Karvy/AMC office for months together to deposit the form. Or they couldn’t get their KYC details updated. Believe me, this happens.  It has happened with a couple of my clients and to be honest, left me completely frustrated.

With perpetual SIPs, you get the inertia to work in your favour. There is no need to renew SIPs. Your SIP will just never end.

If you have travel a lot for work or otherwise or if you are too busy with your everyday life, you may not find time to sign paperwork to renew SIPs.  You may find perpetual SIPs useful.

What are the disadvantages of a Perpetual SIP?

Performance of a mutual fund scheme may keep changing. If a MF scheme has been consistently underperforming peers or benchmark or not in line with your expectations for a reasonably long time, you must reconsider your investments in the scheme.

I wouldn’t give too much weight to the aforesaid aspect. You can always stop a perpetual SIP.

However, if inertia is your problem, you may continue with a poor performing scheme for longer than you should have (if you had started a perpetual SIP).

I feel end of a SIP gives you a chance to relook and review your finances. However, that does not mean you don’t review your investments unless your SIP expires.

Another aspect typically argued against perpetual SIPs is that you must increase your SIP installments as your cash flows improve. With perpetual SIPs, you are stuck with the same amount. Again, this is a weak argument. You can always start a new SIP in the same fund and the same folio.

What do I do?

Personally, I do not use perpetual SIPs for own investments and for your clients’ investments. I prefer 3-year SIPs. It also gives an investor to forcefully review the portfolio and make changes if required.

In this day and age of technology, no paperwork is required to start and stop SIPs. Hence, starting a new SIP takes no more than a few clicks.

Almost all of my clients are quite comfortable with online banking transactions. My recommendation may perhaps change for a client who is not as comfortable with technology.

What should you do?

Your choice must depend on who you are. If you have problems getting out of inertia, a perpetual SIP can be a good choice.  But that does not mean you shouldn’t review your portfolio at regular intervals.

If you are comfortable with technology or can find some time for the investments, a regular SIP is a better choice.

In general, Perpetual SIP may make sense for someone who is quite young (say under 30). You will start the SIP and let it run unless you interrupt it. You may decide to stop after a review.

If you are closer to retirement, a perpetual SIP may not make as much sense. When you are closer to your retirement, there is greater need to review/rebalance your portfolio and review your asset allocation at regular intervals.

Perpetual SIPs or not, you need to review your investment portfolio on a regular basis. The frequency should increase as you move closer to retirement.

What do you think of perpetual SIPs? Will be nice to hear your views on the topic.