Investors beware! When you are investing through Systematic Investment Plan (SIP) in equity or debt mutual funds whether offline or online mode avoid choosing “perpetual” investing duration. Let’s see what’s the meaning of this term “perpetual” in systematic investing.
“Perpetual” mode of investing through SIP is to invest monthly in a mutual fund scheme till the year 2099; yes, you read it right, it is till 2099! Which means if you are investing Rs 1000 every month from August 2018 your SIP would end 81 years from today; it further means that if you are 30 year old in 2018 you would be investing till you would be 111 year old, that’s quite a time to live to complete your SIP investing obligation!
One of my friends who was 55 years passed away last November whose advisor had signed him for a perpetual SIP of Rs 5000 in an equity mutual fund scheme a few years before his death. At the time of his death his bank balance was Rs 72000 and by the time the family had settled his legal succession which took almost six months his SIP was continuing because technically he was alive! I guess this can be called as “ghost or spirit investment!”
Jokes apart, choosing to invest through the “perpetual” mode does not make any sense; it lacks all kinds of logic. Why should anyone invest for 100 years? Investing in mutual funds should be for specific purpose or defined goals of life since human life is full of events.
Retirement, children education, children marriage, vacation and so on are all events which will happen at specific timeframes of life hence it would be ideal to choose specific date and year while investing through SIP route. For example: If you are 30 years and plan to retire at 60 then you should choose 30 years of SIP period; if your daughter or son is 5 years old and 15 years from today she or he would get into post-graduation education then choose 15 years as the SIP period and so on. Goal-based investing by choosing specific tenures of SIP is easy to track on an on-going basis while “perpetual” investing becomes goalless investing.
So, in the future before signing on an application form or investing online in a mutual fund scheme be specific with your goals as well as investing tenure because it leads to planning based investing which is the right way to invest.
The author has written 6 books on investing and personal finance. He has 23 years of experience and 6 years in academics