Investing in mutual funds through Systematic Investment Plan (SIP) has become increasingly popular among the financially-conscious people of India. The idea of investing in small amounts over a period of time with the potential of higher ROI (Return on Investment) looks promising. However, there are some common misconceptions that people have about SIP that needs to be addressed. We have compiled a list of 5 common SIP myths that you need not believe in.
Myth #1: SIP Brings Guaranteed Returns
SIP is not associated with guaranteed returns. It is an investment tool that helps you to invest and build wealth over a period of time. The returns are based on the market performance, and it’s hard to predict the market. Even if you are investing in mutual funds through SIP, there still is a risk of losing your principal amount. However, SIP does help in reducing the risk by investing in small amounts over a period of time, rather than investing in lumpsum. This reduces the cost of the investment, and the potential of earning higher returns increases.
Myth #2: SIP is Only for Short Term investments
There is a general misconception that SIP is only for short-term investments. However, SIP is not just limited to short-term investments. One can invest in SIP for a long-term as well. In fact, investing in SIP for a long-term can be more beneficial, as it helps in accumulating a significant amount of wealth over a period of time. Investors can choose to invest in SIP for a duration of 5 years or more, depending on their financial goals. Also, investors can choose to invest in SIPs of different mutual fund schemes, depending on their investment needs.
Myth #3: SIP is Only for Equity Funds
Another common misconception is that SIP is only for equity funds. This is not true. SIP is not limited to equity funds and can be used for investing in debt funds, balanced funds, or even gold funds. Investors can choose to invest in mutual funds through SIP, depending on their investment goals, risk tolerance, and financial needs. For instance, if an investor is risk-averse, they can opt for debt funds, or if they are looking for a balanced portfolio, they can choose to invest in balanced funds. SIP is a flexible investment tool that allows investors to choose among various mutual fund schemes, depending on their financial goals.
Myth #4: SIP Does Not Require Monitoring
Another common misconception is that SIP does not require monitoring. Like any other investment, SIP also requires monitoring to ensure that the investment is on track. Monitoring your SIP regularly helps in making informed investment decisions and assessing the performance of the mutual fund. Investors need to keep a check on the performance of the mutual fund in which they have invested through SIP. Also, investors need to review their financial goals and investment needs regularly to ensure that the investment is in line with their financial goals. There are various SIP return calculators available online that can help investors to track their investments.
Myth #5: SIP is Only for Young Investors
Another common misconception is that SIP is only for young investors. This is not true. SIP is suitable for investors of all age groups. In fact, investing in SIP is more beneficial for older investors, as they may have less time to accumulate wealth for their financial goals. SIP allows investors to invest in small amounts, which can help in building a considerable corpus over a period of time. Older investors who are retired can also choose to invest in SIP to earn a regular income, as there are SIPs available that offer regular income options.
Conclusion
SIP is a flexible investment tool that can help investors to build wealth over a period of time. However, it is essential to educate oneself and debunk the common myths associated with SIP. SIP does not bring guaranteed returns, and it’s essential to monitor the investment regularly to ensure that it’s in line with your financial goals. SIP is not just limited to short-term investments; one can invest in SIP for a long-term as well. Also, SIP is not limited to equity funds; investors can choose to invest in various mutual fund schemes, depending on their investment needs. Lastly, SIP is not only for young investors; it’s suitable for investors of all age groups.
If you are planning to invest in mutual funds through SIP, it is advisable to consult a financial advisor to get the right guidance and to ensure that the investment is in line with your financial goals. Also, various SIP return calculators are available online that can help investors to make informed investment decisions. Investing in SIP can be a great way to accumulate wealth and achieve your financial goals, provided that you are aware of the common myths associated with SIP and make informed investment decisions.
