Systematic investment plan
(SIP) is considerably the best way of investing in mutual funds, although, time and again, peoples' misconceived notions have slowed their wealth creation. Blocking these misunderstandings and getting your facts right, is an essential deal.
So, here we go with the most prominent myths about SIP and the clarification to this would definitely alter your misunderstandings and could help you in building wealth optimally, through a smart investment tool!
Myth 1: SIP Mutual Funds are different from that of Lump sum Mutual Funds
Fact: There is no SIP mutual Fund or Lumpsum Mutual Fund. SIP or Lumpsum is a way to invest into different mutual fund schemes. Consider Mr. Kushal, who has decided to invest in ABC multicap Fund. He has a surplus of Rs. 50000 in his bank account right now and can also invest Rs. 5000 every month. In this case, he can invest Rs. 50000 right now as lumpsum and Rs. 5000 as monthly SIP in a single mutual fund scheme.
Myth 2: Committed SIP tenure can't be changed!
A lot of investors think that their commitment to an SIP, say for a specific period of 15-20 years can't be changed. And if they do so, they will be penalized. You can definitely change the time duration by giving a duly signed written request a month before, so that the fund can follow the given instructions.
Myth 3: SIPs ask for a large sum investment!
Fact: You can start SIP with a small amount of Rs. 500 (Price of one Pizza) a month and can later on scale it up when your income or surplus savings gets high. Even a planned, small and justified sum like that of
Myth 4: SIP is structured only for small investors!
SIP works on the concept of Rupee-cost averaging and thus, is a great opportunity for investors with limited as well as high funds simultaneously. It is a vehicle for regular, long term and disciplined investment. Whether you plan to invest Rs. 2000 a month, or opt for Rs.20,000 a month, you are going to get proportional benefits through SIPs.
Myth 5: SIP in any equity mutual fund will do
Investing in any equity mutual fund may not lead to automatic wealth creation. We identified around 7% difference in annualised returns after analyzing the past 10 years SIP returns data of various equity funds. Choosing the right set of diversified funds with an eye on the long-term performance track record plays pivotal role. A bad choice can result in large difference in end returns.
Myth 6: Don't start SIPs when markets are at peak!
Fact: No one can tell us that this moment is peak of the market.A lot of investors try to time the market, even when they know that SIPs are their shield against market fluctuations. A common question which revolves around them is- "Is it the right time to start SIP?"
But the answer goes completely inverse to what you think! SIPs burst this myth with their systematic approach as every time is the right time for investing in them.
Myth 7: Missing SIP dates means inviting penalties
SIPs don't demand your attention at all. Once you make the payment, the other ones go through NACH mandate that you submit along with SIP registration form or account opening form. If you don't have enough balance in your account, you will just miss an SIP, but you won't be penalised at all by Asset Management Company (AMC).
Myth 8: SIP and guaranteed returns go hand in hand
Mutual funds never guarantee returns, be it SIP or Lumpsum investment. And remember "past performance is no guarantee of future results". Though you can not get a guaranteed return, systematic investment plan (SIP) helps you with rupee cost averaging on your investments.
Myth 9: SIP is meant for long term investment only
Fact: Investor can decide SIP period. Your SIP period can range from minimum of 6 months & at max you can opt for perpetual (i.e till Dec 2099). We at Indoinvesting advise to align the goal you want to achieve and SIP period.
Ex: Mr. Parthesh want to buy a house after 10 years. So, he will have SIP period greater than or equal to 10 years.
Thus, investors who are willing to bring a disciplined touch in their life, should get above these 9 myths and stay well informed before they take SIP related crucial decisions.
Feel free to comment if you have any Queries related to SIPs, our certified experts will be happy to help you.