SIP (Systematic Investment Plan) is a word that is very commonly heard in the world of investment. At present, the investors have two options – SIP and lump sum investment. Each has its own benefits and limitations. Last year, AMFI released that the Indian inflow for SIP was Rs.5,206 crores and it has been increasing slowly and gradually. Many investors believe that investing small sums is better, but there are many misconceptions about SIP and its working as well. There are many misguided notions on what SIP is all about and why is it needed. Here are some of the myths related to SIP:
Myth 1: SIP AND MUTUAL FUNDS ARE TWO DIFFERENT THINGS.
TRUTH: SIP is not a separate instrument in which an individual can invest. It is a method through which s/he invests small amounts on a monthly basis into a mutual fund scheme. Though an investor can reap benefits from a long-term debt fund and can also minimize the risks, risk minimization can also be done through the concept of cost averaging. Contact your fund manager to know more about cost averaging.
Myth 2: SIP IS A THING FOR SMALL INVESTORS.
TRUTH: Any investor who has the habit of regular savings can go for SIP. It gives a chance to small investors who are willing to invest as low as Rs.500/month. On the other hand, there is no limit to the maximum amount of investment in a SIP. An investor can also invest lakhs of rupees every month.
In other words, we can say that there is no upper limit on the amount of money that you can invest in mutual funds through SIP.
Myth 3: THERE IS A PENALTY FOR STOPPING THE SIP IN BETWEEN.
TRUTH: A person can stop investing in mutual funds according to their convenience. The investor just has to sign a written request for closing an account. There is no penalty for a person who ends the fund with a written notice.
Myth 4: IF A PERSON AGREES ON A SIP AMOUNT, HE CAN NEVER CHANGE IT.
TRUTH: If a person earlier decided to invest Rs 5,000/month through a SIP and now wants to change it to Rs.10,000/month or Rs.2,500/month, he is flexible to do that. SIP provides you with this facility. It is a myth that a person can never change the decided SIP amount.
Myth 5: YOU CANNOT HAVE A LUMP-SUM INVESTMENT AND A SIP SCHEME AT A SAME TIME.
TRUTH: You can invest in lump-sum while having a SIP account. SIP is just a way of investing in the mutual fund. Let’s take an example, an investor has invested Rs.2,500/month in a mutual fund. He got an appraisal in the office and decided to invest that amount i.e. Rs.20,000 somewhere. So he can invest that amount in lump-sum in the same scheme and it will not affect his old SIP.
Myth 6: SIP HAS A LONG-TERM PERSPECTIVE.
TRUTH: An investor has the flexibility to invest in the SIP for a long-term or for a short-term. The investor can invest according to their future goal. The tenure of a SIP can be as low as 6 months or can be as high as 10 years.
Myth 7: YOU SHOULD NOT INVEST IN SIP DURING A HIGH MARKET.
TRUTH: A lot of investors hesitate to start a SIP at a time when markets are high. SIP has no connection with the starting time; it is all about the total duration of the investment. A person with more time can invest at any market level. By investing in a SIP, you are saving for your future and the monthly installments are just adding to it.
Markets may trend higher or lower over the course of your SIP and this fluctuation has little to no effect on the number of units you end up with thanks to cost-averaging. So, it is better to ignore the market levels and keep on investing for a long-term as it will help you to accomplish the desired goals.
Myth 8: MUTUAL FUND WITH AN SIP MEANS THAT YOU ARE SURELY GOING TO RECEIVE THE RETURNS.
TRUTH: An SIP does not work independently. It’s totally the investor’s choice that at what amount they want to invest and for how much time. The investor also decides the intervals for the iinstalments Mutual Funds in the category of market-linked investment options don’t have defined returns. Thus, it is just a myth that the mutual fund investment through a SIP can give you Returns.
