Perpetual SIPs best for investors in their 30s

Those close to retirement should limit their tenure to three-five years

The Bombay Stock Exchange Sensitive Index, or Sensex’s, journey towards 34,000 points has witnessed the inflow of retail investors quite aggressively. And many have taken the systematic investment plan (SIP) route. 

According to data from the Association of Mutual Funds in India (Amfi), the mutual fund industry has added 18 million SIP accounts in FY 2017-18, averaging around 900,000 accounts a month. Even the average SIP size is up 50 per cent – from Rs 2,000-2,500 to Rs 3,250. The overall collection in FY18: an impressive Rs 40,780 crore. 

However, what is more interesting that many are opting for the perpetual SIP unlike the past trend of opting for three-five years or even less. In a SIP, you make periodic investments in a scheme every month. Investors have to choose the tenure of this SIP, which could be one to five or more years. The perpetual option kicks in when the investor leaves that SIP end date blank. Such SIPs would continue for any number of years, unless you give a communication to stop it.

Says A Balasubramanian, CEO, Aditya Birla Sun Life Asset Management Company: “It is always beneficial to continue investing for longer duration and across markets cycles. I would say that SIPs effectively reduce volatility in long-term equity investments and help you make invest regularly without timing the market.” 

Mutual fund analysts believe that, investors should not worry about the equity markets if they want to invest for the long term. But there is a necessity to have proper asset allocation as well. “Investors should continue investing systematically as one can never time entry or exit in stock markets,” says Vidya Bala, head-mutual fund research at FundsIndia. 

An important thing to remember is that investments need to be linked to financial goals. And here one must decide how to use perpetual SIPs. For example, if you have started a SIP for retirement, then a perpetual SIP is a perfect tool. On the other hand, if you have started a perpetual SIP for buying a house or a foreign travel, there is a clear mismatch. Like Bala says: “If an investor has a short time frame of two-three years, they should have limited or no equity exposure as there is a threat of loss of capital.” Most analysts or financial planners would advise you to start any SIP with a clear goal in mind, and not simply because markets are doing well. 

Similarly, age plays an important role in deciding whether to go for a perpetual SIP. Ideally, perpetual SIPs suits best for the investors who are in their 20s-30s as they have longer investment horizon. But investors who are nearing retirement or are in the age bracket of 50-55 years, they should not go for perpetual SIPs.

There should be a clear strategy as well – since investing in perpetual SIPs would be for a long duration, investors should definitely review their portfolio once in a year. “While reviewing, the investor should see whether the fund is performing at the same level as a category or better. One must also see the risk-return profile of the fund and whether it is sticking to the mandate of investing. If he feels that the fund performance is not as per his expectation, they can opt for other funds depending on their risk profile,” said Suresh Sadagopan, founder, Ladder7 Financial Advisors.