Amidst the rising inflation rate in India, a single earning source is not enough. It is why investing a small amount regularly in different financial instruments makes sense. One common problem that many people face is to enforce a habit of investing periodically. They fail at times when other financial liabilities strike unexpectedly. This is where SIP investment makes things easier.
SIP or Systematic Investment Plan is one way to invest through mutual funds that allows you to invest a specific amount regularly. You can choose to invest on a monthly, quarterly, or annual basis. If you are new to investing through mutual funds, SIP investment can help you manage the investment cycle as per your convenience. However, SIP has its fair share of myths that restrain some people from choosing this route. Budget 2020 and its implications on mutual fund returns seem to have added another layer of confusion.
There are some common myths related to SIP investment that you need to know the reality of.
1. SIP Lack Flexibility
Once you start making SIP investment with a small amount, you get the flexibility to invest more or less than that amount. For instance, if you have a financial goal of accumulating Rs. 20,00,000 after 20 years, start investing in SIP that gives 8% returns at a monthly amount of around Rs. 3,300. You can even increase this amount and change the tenure plan as per your will.
It all confirms that SIP investments are highly flexible in nature. Make sure you check the lower limit of periodic investment for the funds you choose.
2. It is Good for Small Investors Only
Not everyone has a big amount that they can invest in one go into an instrument of their choice. One significant advantage of making SIP investment is that you can start with as low as Rs. 500, depending on the minimum investment limit of selected mutual funds. This lower limit makes it easy for small investors to start planning for their long-term goals through SIP.
However, some people only look at the budget-friendly side of SIP, not knowing that there is no upper limit to the SIP investment amount. The more you choose to invest in SIP for a longer tenure, the more wealth you can create over time.
3. It is Good for Equity Funds Only
Different investors have different risk appetite depending on which they choose a specific type of funds. One common myth that you might have heard about SIP investment is that it is best suitable for equity funds. The truth is that SIPs function efficiently to help you regularly invest, no matter which fund type you choose. You can invest in debt, equity, and hybrid funds through SIP mode.
4. You Get Guaranteed Returns with SIP Investment
A common belief amongst people is that choosing the SIP route to invest through mutual funds in India is risk-free, which is not entirely true. Since mutual fund returns are subject to market risks, expecting guaranteed returns through SIP does not make sense. At the backend of SIP, rupee cost averaging works which tend to minimize the risk and loss. While starting your investment journey, you should know that it does not give any assured returns.
5. SIP Mutual Funds are not Same as Lump Sum Funds
This is just not true, as the difference lies in the chosen method of investing money in a specific mutual fund. One investor can choose to invest through one fund via SIP while using a lump sum mode for another. It is similar to the situation wherein two people buy the same laptop. One of them chooses to pay the full amount in one go while the other opts for EMIs.
Believing SIP investment myths can make you lose money in the long run. It is essential to first clear all your doubts with the help of financial advisors, like FinEdge, before starting your journey as an investor.