Investing is the best way to accumulate for a rainy day, and the mutual fund can be seen as the one-stop destination for simplifying all your investment chores. There are two different ways through which one can put their hard-earned money in a scheme viz, SIP and Lump Sum. SIP can be the best choice for you as it is one of the two methods of investing in a mutual fund. It is a regularized investment mechanism which allows the investors to adopt a slow but consistent path of converting their savings into investments. As it is essential to select an appropriate scheme for investing, it is an equally important task to understand the insights of SIP before commencing your investment.
Due to an ignorant attitude and lack of time from the busy schedule people tend to make mistakes while opting for their investment methodologies. There are a few common mistakes that investors commit, unknowingly. So, to invest and gain from it, you must avoid the following misconceptions.
Myth 1: SIP facilitates meagre investments
There is a myth prevailing in the mind of investors that SIP was launched just to facilitate those clients who want to invest small amounts monthly, and it is not suitable for those who intend to put a relatively greater amount on a regular basis.
Reality: SIP is an overall scheme which simplifies the investment requirements of all the clients, whether the amount to be invested is big or small. Every client has the liberty to select an amount for investing consistently over a stipulated period of time. For example, a client is free to take up an amount as low as Rs. 1000 and as high as Rs. 50,000 depending on the affordability.
Myth 2: SIP doesn’t house surplus amount
Once a client begins an SIP plan, then he/she cannot deploy a surplus amount, if any. Investors have a notion that if they take up an SIP with a specific amount, then they are not eligible to put an extra amount at any point of time.
Reality: SIP offers the facility of top-up to its clients. This means that a client enjoys the freedom of investing an extra amount along with the regular installment amount. For example, if a client has opted for an SIP plan of Rs. 3000 per month and in a certain month he is having additional Rs. 6000 which is lying unused, then he is free to park it in his SIP account.
Myth 3: SIP is scheme of mutual fund
Due to its comparison with other bank deposits like RD, SIP is considered as one of the plans and not a method which assists to put money in mutual funds. Investors have the idea that they are placing their money in SIP and not through it.
Reality: It is an investment method and not a plan. SIP acts as a postman who carries the money of its clients to the scheme which they have opted before. This means that it is just the carrier which eases the work of investors as well as mutual fund companies.
Myth 4: SIP should be initiated in Bullish Market
The clients believe that the best time to undertake an SIP is when the market is trending upwards. They believe that a rising market will provide better returns as compared to any other time.
Reality: It is true that SIP provides a facility to take the advantage of bullish as well as bearish market conditions. A client can commence investing as and when he wants. Investors need not wait for a certain market situation in order to initiate the investing process. SIP renders an averaged return over a prolonged period of time by enabling the client to continue investing whether the market is low or high.
Myth 5: SIP can be taken up for a few schemes only
The clients believe that SIP is available for a handful of schemes. Tax-savers, liquid funds, etc. does not allow the clients to select SIP as their investment mechanism. This misconception has stimulated the clients away from some of those schemes which are capable of providing prolific returns.
Reality: SIP is a technique which is available for each and every scheme operating under mutual funds. All the close-ended plans allow the use of SIP for making a regular investment.
To conclude, the clients should get rid of the misconceptions attached with SIP so as to acquire wholesome benefit of investing.
Akshita is a mutual fund expert and has published many articles on SIP and mutual funds like Reliance Mutual Fund, Birla Sunlife Mutual fund, Tata Mutual fund and more, which have presented a clear picture of the investing industry. Her educational and family background in banking and SIP investment plan has given her the much needed experience which is visible in her writings.