10 Common Myths about Systematic Investment Plans in Mutual Funds

10 Common Myths about Systematic Investment Plans in Mutual Funds

Systematic investment plans (SIP) are quite popular among investors and SIP are gaining more and more popularity over the period of time. SIP allows investor to invest fixed amount on regular intervals, you can invest the amount on monthly or quarterly basis.

Your monthly or quarterly installment can be as low as 100\- INR which allows investors among all financial background to invest their money in these plans, even students can start their investment through SIP because one only need a small amount of money to start.

SIP is becoming the first choice of investors over the period of time because you can start investing from early age and at the end you can earn a large amount of sum.

Common myths about systematic investment plans

SIP is only for small investors

One of the most common myth about SIP is that people think SIP is suitable for small investors, such as investors who want to invest 100-1000 Rs per installment.

Well, SIP is suitable for both small and large-scale investors, however small investors have option to deposit as low as 100 RS  at the same time you can invest 1-2 lakh per installment too, SIP schemes are open for both small and large-scale investors.

SIP installment and tenure can’t be changed

This is a common myth about SIP among peoples that SIP duration and installment can be changed. Investors in SIP are free to change the tenure and amount as per their desire after starting the plan.

If you begin investment with 500 Rs installment per month than you have choice to increase your monthly installment as you wish, bigger installment will provide your bigger profit at the end of the tenure.

You may be required to fill a document regarding change usually it does not cost any extra charges.

You can’t discontinue Systematic Investment Plans

SIP mode of investment in mutual funds is gaining popularity year by year and SIP plans are getting record-breaking investments. However, there is a very common myth regarding SIP investment is that you cannot discontinue SIP or you cannot change your mutual fund scheme.

If your chosen mutual fund under SIP is performing poorer than you can have the option to discontinue with that SIP, at the same time you also have the option to move in a different better performing fund with/without paying some extra charges.

SIP is not good in bullish trend

There are various myths about timing of investment through SIP mode, it is common misconception that SIP investment is not beneficial in bullish trend which is an uptrend.

Lump sum investments are not recommended in bullish run because you have to put your money when markets are in downfall so that you can earn profit in uptrend.

Meanwhile, in SIP mode, timing of investment doesn’t matter. You can invest your money in any trend because you have to invest periodically in SIP, so your rupee cost average works well in long term via SIP.

Lump sum performs better than SIP

Another misconception about SIP schemes performs poorly in comparison with lump sum mode of investment.

Well, that is not the truth because for lump sum timing matters most and only experienced investors can catch the right timing.

Sometimes even experienced investors miss the right time of investment in lump sum mode.

While in Systematic Investment Plans mode you are investing periodically so current market trend won’t matter much as rupee cost averaging works favoring SIP investment.

SIP Guaranteed return

There is another general myth about SIP mode of investment is that it guaranteed profits.

Well, it is not completely true, ever mutual fund investment is subjected to market risks some investments are the least risky while some have high risk.

Since you are investing for long term via SIP, so it minimizes the risk of loss because it neutralizes the short-term volatility factor, but unfortunately SIP cannot guarantee the profit.

Systematic Investment Plans are available for equity only

SIP schemes usually perform better in equity investments because you are investing your money periodically. It eliminates the risk of loss from volatile markets, which makes investors believes that SIP are available for equity instruments which is a myth.

SIP schemes are also available for debt funds and can provide impressive returns of debt funds in long term. Even within the category of debt funds one can choose duration funds, gilt funds and credit risk funds etc.

SIP are very risky

Since SIP deals in equity markets, so it is a general misconception that SIP is a very risky scheme which is totally false.

SIP are considered to be one of the safest investments as you have to deposit money periodically which reduce the risk of losing large amount of money in one time.

These schemes are also available for debt mutual funds.

SIP are for experienced investors only

Many investors think SIP schemes are more suitable for experienced investors, which is another misconception.

SIP mode of investments is suitable for both beginner and experienced investors.

The fact is SIP mode favors beginners more in comparison with lump sum mode.

SIP mode allows you to invest your money in small installments which eliminates the risk of losing large amount of money in quick market decline.

Systematic Investment Plans is available for short term only

There are numerous investors who think SIP are available for short-term investments only which is far from truth.

The truth is SIP schemes are available for both short and long-term investments.

Investors are free to choose the duration of their investment as per their earning goals.

Team R Wealth

Team R Wealth

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