Starting October 1, there is a new limit of 30 years for setting up a systematic investment plan (SIP) in a mutual fund. Previously, SIPs could be established without a specific end date. This change prompts an examination of its potential impact on goal-oriented investments.
The concept of managing regret comes into play when investing in equity funds or exchange-traded funds. Immediate market declines post-investment can lead to regret. SIPs, designed as auto-debits from savings accounts, help distance investors from immediate market fluctuations, thus aiding in regret management.
Determining the tenure of SIPs is crucial. Index fund SIPs should align with the time horizon of life goals, ensuring, for example, a 10-year SIP for a 10-year goal. Active fund SIPs for goal-oriented investments should be set for 12 months, irrespective of the goal’s time horizon. Checking the fund’s positive alpha each year is vital before renewing the SIP.
Considering the recent rule limiting SIP tenures to 30 years, it shouldn’t significantly affect investment strategies. Most intermediate goals, like buying a house or funding education, have shorter time horizons. The impact on retirement portfolios, which may span over 30 years, depends on when an index fund SIP is initiated, ideally at the start of one’s career.
However, a potential issue with long-term SIPs is the linked bank account. If the account is inactive during the SIP tenure, it poses a challenge. To ensure continuous SIP fulfillment, maintaining a separate savings account exclusively for managing equity fund and recurring deposit investments is recommended. This account, referred to as the master investment account, should ideally be funded through monthly auto-debits from the salary account and sustained until retirement.
