The Myths and Facts about the SIP Investment Plan!

by Avinash Mittal Blogger

Before investing, it's highly likely to get deterred owing to the popular opinion concerning the instrument. Such opinions are generally formed over half-baked truth. However, such myths can only be faced with facts.

Certain myths are surrounding SIP Investment Plan as well. These myths persist and fan a fear against the plan. Here are some of the myths and the facts:

Does SIP Mutual Fund vary from Lump Sum Mutual Fund?

The fact is that there is nothing called “SIP mutual funds.” Systematic Investment Plan is not a type of investment but a form of investment. Thus, one SIP can have many modes of investment: lump sum, STP, SWP, and Systematic Investment Planning (SIP). An investor can invest a lump sum of Rs. 60,000 at a time or choose to invest the same using SIP mode over 12 months. Hence, these modes of payments allow investors to invest as they wish. 

Only Small Investors should consider SIPs?

SIP was introduced to instill a habit of investment. There is no defined limit to how much an investor can invest in a month unless the scheme or conditions specify otherwise. SIP, irrespective of small or big investors, is a plan for those investors who are unable or unwilling to invest massive amounts. It allows beginners to taste and relish returns. Seasoned investors can keep making diligent investments to continue generating returns. Though there is a pre-defined limit to the minimum amount, there is no bar for the maximum amount.

Lump sum Investment not allowed in a SIP Investment plan?

There is no restriction on investement in a fund and the mode of doing the same. So, if you already have invested a lump sum in a particular fund, you can still invest in a SIP of any amount in the same fund and same account.

Hefty Penalty on Missing SIP Dates!

When you invest, you purchase units of the funds. E.g., if every unit costs Rs.50 and you invest Rs.5000/month, you are purchasing 100 units every month. If you fail to invest Rs.5000 in any month, you do not purchase the 200 units. As an investor, that’s the only loss. No fines or penalties are levied on you by Asset Management Companies. Failure to pay installment does not discontinue your investment. You can continue from the following month, even if you don’t, the accumulated funds continue to earn returns.

When markets are Bullish, don’t invest in SIP

Investors tend to withdraw from SIPs when the market. The entire concept of SIP is to do away with tracking the market. Over an extended period, minor market fluctuations make little/no differences. SIPs work on the principle of rupee cost averaging, which states that the average cost of buying when markets rise or fall over time won’t differ.

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Created on Jul 28th 2020 01:06. Viewed 312 times.

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