Investing in SIP? Here are 5 common myths related SIPs Busted

by Viney Kumar Freelance Writer & blogger

When newbie investors embark his/her respective investment journeys, they have mixed feelings. They are inexperienced in the world of investment, as a result, they are confused about most of the investment related tips and tricks. This is the time when they explore various investment avenues. God forbid, if they come across a myth at that particular period of time, some newbie investors might actually believe it to be true. Lack of investment exposure is the real culprit here.

Tip- You can use tools like SIP planner and seek investment related solutions in a matter of a few clicks.

Getting back to the point, basically, a myth is a baseless statement that lacks any factual evidence.

If you're a newbie investor, you should be well read so that you won't fall into the trap set by myths. If you believe in some myths, it might hamper your growth as an investor. If you're a well-read investor, you can easily differentiate myths from facts.

In this article, we will bust 5 myths related to SIP investments.

Myth 1 - SIP is only for small investors

If SIPs are custom made for small investors, instead of Systematic Investment Plan, they would stand for Small Investors Plan. SIP doesn't discriminate among investors be it small or big. It is nothing but a myth that SIP caters only to small investors.

Anyone who has investment goals and wants to cultivate to the habit of savings can opt for a SIP.

Not just it helps an investor to imbibe investment discipline as per his/her opted Investment tenure say monthly, quarterly, or daily. It offers a better return on investment as compared to FDs, RDs and endowment plans. This, in turn, helps an investor to accomplish his/her Investment goals faster.

Myth 2- Rupee to cost averaging is made possible via stock investments as well. Why go for SIP then?

While a Systematic Investment Plan experimented on a one time scrip can expose an investor to higher volatility, SIP Investment via mutual funds reduces investors' exposure to market volatility because of the benefit of professional fund management, liquidity, and diversification that come with mutual funds.

In addition to that, on the basis of market cap, small-cap, mid-cap and large-cap opted by an investor, his/her portfolio can be strategically structured as per his/her risk tolerance.

As per investors' preference, he/she can structure the portfolio based on Investment style such blend, opportunities, value, growth, multi-cap, flexi-cap, etc.

By opting for SIP Investment via mutual funds, an investor can enjoy 2 major benefits: First is rupee cost averaging & second is compounding.

Myth 3- SIP via MF is different from one-time mutual funds

This is nothing but a delusion. Many investors tend to believe in the myth blindly. As a matter of fact, there aren't any special plans formulated for Systematic Investment Plans. SIP is just an investment mode.

Myth 4- An investors can't make a one-time investments using his/her existing SIP account

As mentioned earlier, SIP is just an investment mode. Making a one-time Investment in a MF with the help of SIP is possible. For instance, Mr. Ramesh has opted for a SIP via mutual fund of 1,000 Rupees. He received a bonus of 50,000 Rupees, he can invest the sum of money in his SIP account and enjoy returns on investment accordingly.

Myth 5- If you miss 1-2 Investment, you will be penalized.

At the time of enrolling SIP investment, the investors must provide a National Automated Clearing House mandate from National Payments Corporation while submitting the application form. The opted SIP details are mentioned in the mandate. As a result, the bank debits the Systematic Investment Plan amount and transfers it to the fund's house whenever SIP investment is due. The starting date of investment and the ending date of investment are mentioned in the application form. An investor can’t miss paying the investment because of the auto-debit feature.

In case an investor isn’t able to maintain funds in his/her account and SIP installment isn’t deducted, though the investor misses that installment, but his/her account remains in an active state. It isn’t like the EMI on loan, where missing an installment means the defaulter will be penalized.

In the Nutshell

In this article, we have busted a few of many myths prevalent in the investment industry. As an investor, don’t believe in anything that isn’t backed up with facts. Don’t believe anything just because your friends also believe that. Dig in the deep and you will be able to skim facts through the information.