What is SIP and its Myths?


A systematic investment plan, or SIP, is a way to invest in mutual funds where the investor selects a mutual fund scheme and makes periodic investments in it. Instead of making a large investment at once that can yield greater returns, a SIP investment plan works by making small investments over time. Let's bust out the various myths about it.

 

SIP is only for small investors

Even though SIPs give investors a way to make smaller investments, it shouldn't be thought that only huge investments can be made via SIPs. Investors can invest as much as they'd like using the SIP method. It's true that a large number of high-net-worth individuals (HNIs) and rich investors invest in SIPs to invest in the markets. One only needs to complete the KYC process before one can start investing through SIPs. An investor can regularly invest in the market thanks to SIPs. This method is available to everyone who wants to save money for long-term financial goals. Consequently, it is wrong to believe that SIPs are only intended for small investors.

 

SIP can be only done for equity funds

Investors generally believe that the SIP mode of investing is only for equity funds. This is absolutely false. Investors have a wide range of alternatives when investing in mutual funds through SIP, including debt funds, hybrid funds, index funds, and thematic funds. 

 

SIP is a product

A SIP investing option enables investors to make periodic, scheduled investments. A variety of mutual fund schemes are offered to investors, and the investment amount is deducted and invested in the scheme of their choice. Depending on their financial goals and level of risk tolerance, the person can select from a variety of schemes. In the case of SIPs, let's suppose an investor wishes to invest INR 24,000 over the course of 12 months, they have the option to buy mutual fund units by making INR 2,000 monthly investments. SIP is a form of investing option rather than a product.

 

SIP can’t be modified once selected

Many investors are concerned that once a SIP is started, it cannot be changed; however, this is not the case. SIPs are regarded as one of the best methods for investing in the capital markets since they give investors flexibility. It's important to have in mind that changes can be made to the amount, time frame, and even the mutual fund scheme once an investor finalizes their SIPs. The investment amount and tenure can be changed at any time to suit the needs of the investor. Investors can modify the SIP's amount if their income increases or decreases or if they want to boost their savings or investments.

 

SIP in low NAV funds will offer higher returns

Many investors think mutual funds with lower net asset values (NAV) are cheaper and will deliver higher returns. Although the NAV is crucial when investing, the return that a mutual fund scheme can yield is not indicated by it. The price at which an investor buys or sells units of a mutual fund is known as the fund's NAV. An investment fund's NAV constantly changes. Therefore the returns are not determined by the mutual fund's NAV (net asset value). 

 

SIP is subjected to guaranteed returns

Investors have the option to invest in mutual funds on a recurring basis via SIPs. SIP investments in mutual funds are safer than equity market investments, however, depending on market volatility, mutual funds are still subject to market risks. For an investor, attaining assured returns in the short term can be challenging, but long-term mutual fund investing can result in investment returns. Investors should understand that there is risk involved when investing in the market, thus one should be ready before making a decision. The advantages of rupee cost averaging are available to investors who invest in mutual funds through SIPs.


If you plan to begin your investment journey with a SIP, be careful to adopt a long-term perspective. Given that SIP investing is all about discipline, a sensible strategy combined with persistence can result in wealth creation over time. Investors should also be aware of past performance statistics of mutual funds. There is never a perfect time to begin investing in mutual funds. The sooner you begin investing, the higher returns you can anticipate in the future. 

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