SIP investments in mutual funds have succeeded in both, attracting investors and offering handsome returns, in India. But just as any other popular investment vehicle, SIP plans too are surrounded by a lot of myths. Read this post where we debunk five such common SIP myths.
SIPs or Systematic Investment Plans have played an integral role in the popularity of mutual funds in India. But just like all the other popular investment strategies, SIPs too have fallen victim to misconception and hype. Some of the myths related to SIP investments are as such that they can significantly affect your wealth creation.
If you are planning to invest in mutual funds through SIP, we’ve bust 5 of the most common myths below.
- Only Small Investors Invest in SIP
SIP is one of the best ways to invest in mutual funds. You can start investing as little as Rs. 500 a month in a fund of your choice. Here, it is important to note that the minimum investment in SIP is low to enable even the smallest of investors to take advantage of mutual funds. In no way it means that it is only for small investors.
No matter if you have Rs. 1,000 or Rs. 1 lakh to invest every month, SIPs work the same way for everyone.
- You can Time the Market to get Better Returns through SIP
While this might be true technically, do you believe that you’d be able to time the market every time? One of the main reasons for which you select mutual fund is that they have professional management to handle the investment for you. And as a matter of fact, even most of the seasoned investors fail to time the market consistently.
Rather than believing such myths, continue investing in SIPs for a long time, and you’ll generate excellent returns. Remember that smart investors are not the ones who are able to time the market but the ones who consistently invest through SIP, and remain invested.
- SIP Funds and Lumpsum Funds are Different
A lot of new investors believe that there are particular mutual funds for SIP and there are specific funds solely for lump sum investments. This is not true.
There is no SIP or lumpsum mutual fund. SIP is only a way to invest small amounts in a mutual fund regularly. You can invest a lump sum amount in the same fund.
- There is a Penalty for not paying SIP
SIP is nothing close to EMI of loans. While you’d need to provide ECS mandate for both, you will not be penalized if you miss any SIP. Your bank would debit the amount you select for your SIP on the date you select in favour of the fund house you have selected.
If for some reason you do not have adequate funds in your bank account for the SIP, you’ll not be required to pay any penalty for the same. Your SIP will remain active even if you miss the SIP.
- You Cannot Increase the SIP Amount when you Want
Another very common myth among a lot of people is when you once agree for a SIP investment plan, the amount that you select for investment cannot be changed in future. This again is not true at all.
You can change the SIP amount as and when you like. In fact, experts suggest that you should increase the SIP amount every year to maximise your returns.
As an investor, it is very important to understand the difference between someone’s opinion and actual facts as they might not always be the same thing. Avoid such myths related to SIP investment and take well-informed and smart investment decisions.