Five Myths About Sip

Yet, some investors hesitate to opt for a SIP because of the myths surrounding it. To help investors make the most of their mutual fund investments, let's bust some myths about SIP investment.

• Only small amounts can be invested through SIP: There is a minimum investment limit in SIP but there is no maximum investment limit. Investors can choose to invest anywhere from Rs.500 to even Rs.1 lakh through SIP. The problem with choosing a large investment amount is that the investor has to ensure he or she saves up enough money to invest at fixed intervals. It goes without saying that medium to large investments through SIP can result in higher wealth creation in the long-term.
• is not advisable during an upward market trend: Investors are usually in the habit of timing the market i.e. they wait for the market to fall or rise and invest accordingly. However, when an investor chooses a SIP, he or she need not worry about timing the market as the investor can benefit from RCA. Rupee Cost Averaging balances out volatile market conditions in the long run. Regardless of when one invests through SIP in a mutual fund, it is advisable to invest for longer periods of time.
• Guaranteed returns for investments made through SIP in mutual funds: Investors should know without a doubt that mutual funds are market linked and hence returns are not guaranteed. Therefore, investments made in a mutual fund through a SIP does not mean guaranteed returns. However, if the investment is made for a longer period of time, SIP offers better chances of capital appreciation.
• Penalty to be paid for changing SIP amount and tenure: SIP is a flexible option when it comes to making investments in a mutual fund. An investor does not have to stick to a specific amount or duration for the entire period of investment in a fund. He or she can change SIP amount and duration as per his or her requirement but keep in mind that there is a minimum SIP investment amount and tenure. To change the amount and tenure, all one has to do is submit a few necessary documentation to the fund house. It may take about a month or so to implement the change in SIP instructions. No penalty has to be paid for making the change. Likewise, there is no penalty if an investor decides to exit a mutual fund SIP.
• SIP in any equity mutual fund guarantees returns: This is a myth as investing in any mutual fund does not result in wealth creation by default. It is wise to choose a portfolio of diversified funds (equity, debt, and hybrid funds) to invest in for the long term. Compounding can work both ways, if investments are made in an ill-fitting mutual fund then the difference in the end returns can be large.

In conclusion, investors who opt for a SIP should have a long-term perspective, only then can they benefit from the concept of Rupee Cost Averaging and wealth creation through compounding. SIP investments should be made in diversified funds that are chosen well and not in just any equity funds.