To invest in a mutual fund, an investor can make a lump sum investment or start an SIP. A Systematic Investment Plan (SIP) allows investors to invest in mutual funds at regular intervals. The benefits of SIPs include rupee cost averaging, flexibility, power of compounding, etc. There are various types of SIPs available in the market. In this article, we will explore two types of SIP: Fixed SIP and Perpetual SIP. Understanding their meaning and key differences may help you choose the right SIP to achieve your investment goal.
What is Fixed SIP?
In fixed SIP, you invest a fixed amount regularly for a fixed investment period. You can set SIP frequency monthly, bi-monthly, quarterly, or half-yearly. This type of SIP is a simple one; all you need to do is be disciplined to accumulate your target corpus. With small regular contributions, fixed SIPs may enable you to accumulate a significant corpus.
What is Perpetual SIP?
Perpetual SIPs do not have set end dates. To stop the perpetual SIP, you need to fill out an SIP closure form and submit it to your Asset Management Company (AMC). So, when you opt for this type of SIP, you do not need to renew your SIPs constantly. You can invest as long as you want in an SIP.
When you fill out the SIP application form, you need to select the tenure of the SIP. If you do not specify SIP tenure, then the SIP becomes a perpetual SIP. In other words, your SIP investment will continue for a duration until you provide instructions to the fund house to stop it.
Example of Fixed and Perpetual SIP
To further understand these types of SIPs, let’s assume an example. Consider a fixed-tenure SIP where an investor selects an investment horizon of 10 years. In that case, the AMC will stop debiting investor’s bank accounts for the SIP after this period is over. If the investor wishes to continue their SIP investment, they need to inform the AMC to continue with the SIP and extend its tenure. In perpetual SIP, an investor’s SIP continues until they intimate the AMC to stop.
Difference Between Fixed SIP and Perpetual SIP
The key difference between fixed SIP and perpetual SIP is that fixed SIP has a set tenure. Whereas, a perpetual SIP continues until the investor decides to stop it. These two SIPs differ based on the following parameters as well.
| Parameters | Fixed SIP | Perpetual SIP |
| Tenure | It has a fixed tenure. In this SIP, renewal is required. | Perpetual SIPs do not have end dates. Indefinite SIP tenure allows investors to generate wealth without renewal. |
| Flexibility | Moderate flexibility. This type of SIP has a fixed tenure. | High flexibility. It can adapt investment strategy according to market conditions and investment goals. |
| Operational complexity | It has low operational complexity. This SIP runs for a predetermined tenure and requires less frequent monitoring. | Based on market conditions, it requires active monitoring and potential adjustments. |
| Risk of overexposure | Low risk as fixed tenure often prompts portfolio review and adjustments. | High risk since it has indefinite tenure. It requires active portfolio management for diversification. |
Benefits of Investing in SIP
There are various benefits associated with SIP investment. Some of the major ones are:
- SIP investment encourages a disciplined approach by requiring investors to set aside a fixed amount of money regularly. Investors looking to invest through the SIP route can use the Axis mutual fund app.
- It is easy to set up and manage an SIP. In addition, it allows investment amounts to be automatically deducted from bank accounts.
- SIP offers the flexibility to choose the investment amount and frequency along with the duration of the investment.
- Investing in SIP provides access to professional investment management, which helps individuals make informed decisions and achieve financial goals.
- SIP allows rupee cost averaging, which helps in averaging out the cost of your investment over time.
Conclusion
Perpetual and fixed SIP are the types of SIP. Perpetual SIP has an indefinite investment horizon, while fixed SIP has a fixed investment tenure. Perpetual SIP offers the benefits of flexibility and the potential for long-term gains. However, they may require more active management compared to fixed SIP. The main difference between perpetual SIP and fixed SIP is that perpetual SIP does not have a set end date. As a result, it allows investors to invest in a flexibly for a long time. On the other hand, fixed SIP has a set end time, suitable for investors having a set investment horizon. Overall, SIP offers the benefit of rupee-cost averaging, starting with smaller amounts, power of compounding, etc.
Note: Views and opinions contained herein are for information purposes only and should not be construed as investment advice/ recommendation to any party or solicitation to buy, sale or hold any security or to adopt any investment strategy. It does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient should exercise due caution and/ or seek professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein.
Past performance may or may not be sustained in future.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
