When it comes to investing in the markets, certain investors hold certain beliefs that largely influence their investment decisions. SIP or systematic investment plans are not immune to this practice as well.
Several investors, especially new investors hold certain beliefs towards SIP investments that may not be always true. In this blog, we will try to bust a few SIP mutual fund myths for you, so that you can make an informed investment decision.
Common Myths Of SIPs
Following are some of the SIP myths that are prevalent among novice investors:
Stopping SIP investments during a market correction
Several investors commit the mistake of pausing, or worse, stopping their SIP investments as soon as the stock markets correct. However, this is actually completely opposite of what an investor is expected to do during a market correction.
Why? Let’s understand. SIP investments help to average out the cost of investment through a concept known as rupee cost averaging. Falling markets may be an opportune time to invest more due to the low prices.
SIP is an investment product
Another common blunder committed by investors is that they assume that SIP is an investment product in itself. However, it is merely a way of investment or an investment facility that allows individuals to invest in mutual funds in a systematic manner.
So, you do not invest in SIP. Instead, you invest in the markets through SIP mode of investment.
One must invest through SIP only in equity funds
Another common myth that must be busted is the delusion an investor lives in – invest via SIP investment mode only in equity mutual funds. However, they cannot be more wrong. An investor can invest in both debt funds and equity funds through SIP mutual funds.
If you wish to achieve a short-term investment goal in planned manner, SIP in debt funds makes sense.
SIP mutual funds ensure promising returns
Nobody would say no to promising high returns on their investments. Several investors live in the dark that investing in mutual funds through SIP mode of investments eliminates the risk of investments and hence promises assured returns to investors.
However, they cannot be more wrong. Though, SIP investments tend to work in the favour of investors when invested for a prolonged duration, investments in mutual funds are market-linked. This means that one cannot expect assured returns on SIP
investments.
Heavy penalty is charged when you discontinue your SIP investments
Unlike popular belief, an investor is not levied heavy penalties in case they miss their SIP investments or default on their SIP instalments.
However, one must be careful that if they miss 3 successive SIP investments, the fund house might cancel your SIP investments. What’s more, the bank might charge some penalty in such cases.
Conclusion
Now that we have helped you provide a clear picture of SIP investments, hope that it will help you make the right decision. You can always avail of the services of a financial advisor if you are stuck at any investment step. Happy investing!