Top 5 misconceptions about SIP
SIP Investment Plan
Mutual fund and Systematic Investment Plan is rapidly growing as a common term in the insurance market. But a lot of people still find SIP difficult and confusing to invest in. With so many misconceptions roaming around about mutual fund and SIP, it’s time to clear these misconceptions related to systematic investment plan and make you much aware about how beneficial is mutual fund and systematic investment plan.
What is SIP?
Firstly, the investors should make this very clear that a SIP is not an investment whereas it is the process of investing in mutual fund. Systematic investment plan is not a scheme in itself but it’s an investment strategy. So, while investing in mutual fund there are certain aspects that should be kept in mind.
1. Systematic Investment Plan-
While considering systematic investment plan one of the biggest mistakes people often makes is to think that mutual fund SIP can be done for investing small sum of amount whereas in SIP one can invest any amount ranging from Rs1000 to even 1 crore per month. SIP is not restricted to the amount of investment but it is a concept of well disciplined, periodical and long term investment. Mutual fund SIP results in much better long term investment as compared to regular investments.
2. Penalty In Case if SIP is Stopped in Between-
Another misconception about SIP investment is that if you have committed to an investment for a period of 10 to 20 years then one cannot stop mutual fund SIP in between, however, this is not true. One can continue or stop the mutual fund SIP according to one’s own convenience. The investors just need to provide a duly signed written request. Moreover, for changing the amount the investors just need to stop investing in existing SIP to start a new one.
3. SIP Provides Low Return-
Generally, while making investments, one of the major goals of people is to gain long term return. In case, an individual is investing in SIP then expecting an absolute return over a short period of time will not make you feel good. The investments made on SIP are generally based on internal rate of return. So, as compared to internal rate of return the absolute return seems to be lower over a short term in SIP. One of the major reasons behind this is, in SIP the money is invested at various points in equal intervals of time and not at one go. Therefore the investors gain good returns on investment in SIP investment plan over a long term period.
4. Investing in SIP is same as Investing in Stock Market-
Not all SIP funds invest in stocks. In fact, most of the diversified equity funds have both the mix of debt and equity. Also, the diversified variety of SIP provides funds for every type of investor. By analyzing the risk spectrum of low to high one can choose the SIP investment plan according to their own preference.
5. One Need Large Sum to Invest in SIP-
This is also a myth that one needs to have a large sum amount in order to invest in SIP. One can start investing in SIP as low as Rs500. So, while investing in SIP one does not need to have a large sum amount to invest for.
SIP is more advantageous as compared to the lump-sum investment beacuse the amount invested in SIP is on monthly basis, so the impact of market violation is very less or none. Moreover, as one can create, update or cancel SIP anytime, therefore, SIP funds offers flexibility to the investors. By analysing the changing SIP rates, one can choose the best scheme according to their choice.