SIP or systematic investment plan is a method of investing which allows the investor to invest periodically. The periods may vary from monthly to quarterly to yearly basis. Traditionally, one-time or lump-sum investments were made is the desired stock or fund. But with the introduction of SIP, the investors are privileged with a systematic plan to manage their investment cycle as per their convenience.
It also comes very handily when the investor does not have a large amount of money to invest in one go. You can always start small and increase the investment amount as per your choice. Although SIPs are one safe mode of investment canceling out the risk factor in the long run, there are still some myths and delusions about SIPs that restrains investors from going with it.
Piggy busts the top seven myths about SIPs here;
1. A MEDIUM FOR SMALL INVESTORS ONLY
This is the topmost myth you would hear from an anti-SIP person. While this is an added advantage that SIP allows you to start small at as low as Rs. 500 and increase up to any limit, people tend to see only one side of the coin. As a matter of fact, there is no upper limit on the investment amount when it comes to SIPs. The more is the investment amount for a longer period, the greater is the saving and gains.
2. SIPS ARE BEST SUITABLE FOR EQUITY FUNDS ONLY
This is another very popular myth regarding SIPs. SIPs function efficiently irrespective of the fund type. You can get invested in both Debt fund or Equity fund using SIP depending upon your time span and risk appetite. There is also a provision for investing in Hybrid funds which is basically a combination of both debt and equity funds in varying proportions. You can make an investment in all three types- Debt funds, Equity funds and hybrid funds using SIP.
3. A BULL MARKET DOES NOT ALLOW SIP
Investing through SIP works irrespective of the market situation. This is one of the several advantages of investing through SIP that you need not time the market. SIPs work on a principle called “Rupee Cost Averaging” which allows you to invest and make payments periodically with a fixed amount. This means you buy more funds when the market is low and less when the market is high.
Check https://www.piggy.co.in/blog/what-is-a-sip/ for more details.
4. SIP CANNOT BE CHANGED
SIP ensures flexibility in all manners. This myth is false in its totality as flexibility is the key assurance of SIPs. You have all the liberty to changes the investment amount at your own will. Not only the amount, but the tenure of the plan can also be changed. The only thing that needs to be kept in mind is to maintain the minimum amount for the respective fund which may be Rs. 500 or Rs. 1000.
5. HEAVY PENALTY IS LEVIED IN CASE OF DEFAULTING OR STOPPING SIP
There is no such rule charging the investor with fine or penalty in case of defaulting a month/quarter/year’s SIP. The AMC shall not levy any fee or fine or charge in such case. Although it is the responsibility of the investor to inform the AMC before stopping the SIP.
6. SIP ENSURES GUARANTEED RETURNS
There is a general belief that investing through SIP ensures guaranteed returns and the elimination of losses and risks. Rupee cost averaging works in the background which minimizes the risk factor but that does not mean it nullifies the risk and related loss.
Investing through SIP, in the long run, does average out the risk but does not assure any guaranteed returns.
7. LUMPSUM MUTUAL FUNDS AND SIP MUTUAL FUNDS ARE TWO DIFFERENT THINGS
This is not true. There is no difference in the type of mutual funds. It is just the method of investing the money in that particular mutual fund which is different. For instance, you and your friend happen to buy the same smartphone. You paid the total amount at the time of billing whereas your friend chose to buy the phone on EMIs. The point to be noted is that the smartphone is the same in both the cases only the mode of payment is different.
Same is the case with SIP and lump-sum investment.
Do not fall in the trap if false connotations and dis-beliefs. Start investing through SIP to enjoy hassle-free and scheduled investing. Check the best mutual funds to invest in at https://www.piggy.co.in/ and Start Investing!