Mutual Fund SIP Myths Busted for Smart Investing:Systematic Investment Plan (SIP) has changed the way of investing for many Indian investors. People investing in mutual funds have started using SIP on a large scale. But despite the popularity of SIP, there is still a lack of complete information about them. There are many myths related to SIP, which are important to be removed to become a smart investor.
Myth 1: SIP is an investment product
Many investors consider SIP as a separate investment product. But in reality, SIP is not an investment product but a convenient and disciplined method through which you can invest regularly in mutual funds. Through SIP, a fixed amount is deducted from your bank account every month, every quarter or at any fixed time and invested in your chosen mutual fund.
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Myth 2: SIP is a different asset class
It is important to note that SIP is not a separate asset class and investing through it does not guarantee any specific return. Its performance is completely dependent on the performance of the mutual fund scheme you have chosen. So instead of considering SIP as an asset class, it should be considered only as a way to simplify and automate the investment process. Something like recurring deposits in post office or bank.
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Myth 3: SIP is only for small investors
It is true that in most schemes you can start investing through SIP with just a small amount like Rs 1000 or Rs 500 every month. But this does not mean that SIP is only for small investors. The reality is that there is no upper limit on investment in SIP. Many high net worth individuals (HNIs) also invest large amounts through SIP, so that they can take advantage of averaging and compounding by making regular investments. Actually, the big advantage of SIP is that by investing in mutual funds through it, you can take advantage of market fluctuations in a better way. Because when the market is down, you get more units of the fund for the same amount and when the market is up, you get fewer units. This reduces the average cost of investment. This is called Rupee-Cost Averaging.
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Myth 4: SIP is only for equity funds
The belief that SIP is only for equity funds is also completely wrong. In fact, you can use SIP to invest in all types of schemes, from debt funds or hybrid funds to gold ETFs. Mutual funds recognized by SEBI have both equity and debt schemes, from which you can choose the right scheme according to your needs. Investing in debt funds through SIP is very much like investing in a bank through recurring deposit (RD), in which there is a hope of getting higher returns. Debt funds usually offer more stability than equity funds, so they are perfect for investors who want to avoid risk or whose financial goal of investment is short term.
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Myth 5: It is difficult to withdraw money from SIP
Many investors also have the misconception that after starting a SIP, you cannot withdraw your money whenever you want. This is not completely true. Yes, due to the rules related to tax saving, there is a lock-in period of 3 years in Equity Linked Savings Schemes (ELSS), but in most open-ended mutual funds, you can withdraw your investment anytime. Not only this, if you want to stop SIP for any reason after starting it, then you can do this work easily. You do not have to pay any extra fee for this. Along with this, you can also sell the units already invested. However, while doing this, information should be taken about the exit load and tax applicable on the profits. Exit load may vary according to the holding period of your mutual fund unit.
Myth 6: Only long term investments can be made through SIP
This belief that investments through SIP can be made only for the long term is also not completely correct. However, those investing in equity funds are generally advised to do regular SIPs for 5-7 years or more, only then they will get the full benefit of averaging and compounding on their investment. But you can also do SIP for a short period as per your investment objective. Yes, you have to choose the right product according to the estimated period of your investment. For example, for a short period, you can invest in a debt fund like Ultra Short Duration or Short Duration Fund through SIP.
