7 Most Common Myth About SIPs You Must Know
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Debunking Common Myths About Systematic Investment Plans (SIPs)
Systematic Investment Plans (SIPs) have gained significant popularity in India, driven by extensive campaigns by mutual fund companies and industry bodies. Despite their growing acceptance, with Mutual Fund SIP accounts reaching 3.04 crore and collections amounting to Rs. 8,532 crore in January 2020, misconceptions about SIPs persist. Clearing up these myths is crucial for investors to make informed decisions. See below for the 7 Most Common Myth About SIPs You Must Know in detail.
7 Most Common Myth About SIPs You Must Know
Myth 1: The Nature of SIP Investment
A common error is the belief that individuals directly invest in SIPs. In reality, SIP is merely a method offered by mutual fund houses allowing investors to periodically invest in selected mutual fund schemes. It contrasts with lump-sum investments, highlighting the mechanism rather than the investment venue.
Myth 2: SIPs are Only for Small Investors
The misconception that SIPs cater exclusively to small investors is widespread. In truth, while SIPs can start from as low as Rs.500, there’s no bar on setting up SIPs for higher amounts, even exceeding Rs.1 lakh, subject to the mutual fund’s policies and market strategies.
Myth 3: Risk and Return Misconceptions
Many assume SIPs to be a risk-free investment option offering guaranteed returns. This is inaccurate as the risk associated with SIP investments hinges on the underlying assets within the mutual fund. For example, investing in small-cap funds through SIP carries higher risk compared to large-cap funds due to the nature of the investments made by the fund.
Myth 4: Flexibility in SIP Terms
Contrary to the belief that SIP investment terms and amounts are rigid, they are quite flexible. Investors have the liberty to adjust the investment amount and duration, making it easier to align investments with personal financial growth or goals.
Myth 5: Permanence of SIP Investments
The notion that SIPs cannot be stopped is incorrect. Modern mutual funds often offer perpetual SIP options, eliminating the need for annual renewals. However, investors retain the flexibility to discontinue or pause their SIPs based on financial needs or goal attainment.
Myth 6: Market Downturns and SIP Withdrawals
The strategy of halting or withdrawing SIPs during market lows is fundamentally flawed. SIPs employ rupee cost averaging, benefiting investors by allowing the acquisition of more units when prices are low and fewer when prices are high. Thus, maintaining SIP investments during market downturns can be advantageous, potentially leading to greater capital appreciation upon market recovery.
Conclusion
Dispelling these myths around SIPs is essential for investors seeking to leverage SIPs effectively in their investment strategies. Understanding the nuances and flexibility of SIPs can lead to more informed and fruitful investment decisions. This is the brief information about the 7 Most Common Myth About SIPs You Must Know in detail.
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