10 SIP MYTH BUSTERS
The popularity of SIPs has also fuelled plenty of misconceptions about them. Do not make these mistakes when it comes to SIPs
MYTH 1: SIP IS A MUTUAL FUND
SIP is not a MF scheme. It is an investment concept and tool you can use to invest in mutual funds. The concept of monthly SIP, when adapted to bank savings, is akin to a recurring deposit. The same concept can be used to put money in a ULIP (unit-linked insurance plan) or the NPS (National Pension System). Even within mutual funds, all open-ended schemes including debt funds, prove to be investments through SIPs.
MYTH 2: SIPs PROVIDE GUARANTEED GROWTH
The SIP way to investing does not guarantee growth. After all, SIPs are mutual fund investments, with market-related risks. However, relative to lump-sum investing, investing through SIPs does lower the risk in the long term, especially over volatile market conditions.
MYTH 3: SIP INVESTMENTS DON’T WORK IN A RISING MARKET
The purpose of investing through SIPs is to ride market volatility. Yes, there may be phases when investments through SIPs may not seem to grow as much as a fixed lump-sum at the beginning of a rising cycle. However, you can know that the markets are on the up-phase only in hindsight and not at the time of investing. The purpose of SIP is to participate in both the down and up phases of the markets and benefit from it.
MYTH 4: SIPs ARE FOR SMALL INVESTORS
One can start an SIP for as little as Rs 500 a month but there is no upper limit to investing through SIPs. For the salaried, the advantage of SIPs is to follow an investment frequency that matches their monthly cash flows. SIPs can be used by the salaried, but are also for those with erratic incomes, like businessmen, and in the frequency they want.
MYTH 5: SIPs ARE RIGID
There is flexibility on commitment in frequency, duration as well as amount in SIPs. It is the most flexible investment option for investors. SIPs exist in many variants as per one’s convenience.
MYTH 6: SIP IS ONLY FOR EQUITY SCHEMES
The way rupee cost averaging works, SIPs seem skewed towards demonstrating their suitability to equity funds. But the facility to invest in debt and hybrid funds is available. Check with the fund house about the different options.
MYTH 7: SIP IS BETTER THAN LUMP SUM INVESTMENTS
An SIP’s convenience does not mean it is the best way to benefit from MF investments. For instance, if you make a lump-sum investment at a time when the markets are down and stay invested till the markets are about to drop, chances are an SIP investment may not earn as much returns for the same period.
MYTH 8: BEGINNING OF THE MONTH SIP IS THE BEST
The purpose of SIPs is to avoid timing the market and invest over market cycles. Over the long run, it has been proven time and again that investing regularly pays off instead of waiting for the right date or frequency of investment. When it comes to SIPs, any time is a good time to invest.
MYTH 9: YOU CAN'T INVEST A LUMP SUM THROUGH SIPs
Your SIPs in a fund are for a set frequency and time frame. You have all the flexibility to invest in lump sum in the same fund scheme and the same folio as and when you feel like. There is no restriction to additional lump-sum investments in a fund that you are investing in.
MYTH 10: SIPs IN FUNDS WITH LOW NAV GET BETTER RETURNS
Invest in a fund that has a proven track record and provides scope for future growth. The NAV of a fund is irrelevant; look for the scheme’s performance and its suitability to your investment needs.