SIP (Systematic Investment Plan), are becoming a favourite among investors gradually. Considering its flexibility, it definitely has great appeal! Regardless, there still are many misconceptions surrounding this investment vehicle. Let’s bust some of them here in this article!
Myth – SIP is ideal for small investors
As SIP is perceived as something that helps the working class invest bit-by-bit each month, it is commonly associated with small investments, just like recurring deposits.
Reality – SIPs are simply meant to inculcate the habit of long-term and disciplined investments among investors. Regardless of whatever you choose to invest, whether Rs. 500 or Rs. 10,000 per month, the benefit of rupee cost averaging will work equally well for you. It’s not only small retail investors, but high net worth individuals too who invest diligently via SIPs.
Myth – It’s not advisable to enter into or persist with the SIPs when the markets are bullish
People new to SIPs often hesitate taking this investment route when the markets are moving upwards. If they’re already invested via SIPs, their first reaction during such times is to withdraw from the plan/s. They feel it just isn’t worth to continue purchasing units at higher values.
Reality – The whole point of investing via SIPs is to do away with the need of market timing. SIPs aren’t about when you start, but for how long you persist with them. You can start an SIP any time you wish as long as you’re committed to stick to it throughout its tenure. If you don’t invest right now, then the markets may move further upwards in the time to come. Then you would’ve missed the chance to enter at a lower level! On the whole, when investing via SIPs, you should ignore the market levels and work towards staying invested for longer tenures.
Myth – Smart investors can do much better than the SIPs by timing the markets better
Reality – Well, you probably can. But will you be able to pull it off every time?! Furthermore, if everyone could just learn a few market timing tricks here and there, how many market opportunities would actually exist?! Moreover, the extraneous factors involved are so many that even the seasoned investment gurus fail at market timing most of the times.
Markets exhibit great volatility and are prone to fluctuations owing to several unknown and known factors. Hence, if you look carefully, it is not timing the market, but the amount of time you stay in the market that matters. Smart investors would do much better by simply running an SIP and then letting it take care of their investments on an auto-pilot mode.
Myth – SIPs are meant only for the short term
Reality – This is the most commonly noted myth related to SIP investments, especially when it’s about equity fund SIPs. A good majority of us, although, are very comfortable committing regular sums of money to insurance, PPF, home loan repayments, get quite skeptical when it comes to mutual fund SIPs. We normally perceive debt investments as ideal for long-term and equity for short term.
If you look closely, it is the opposite that should be the case. While debt investments deliver good returns only in high interest rate scenarios, equities deliver while traversing through the downwards and upwards market movements. SIPs help investors navigate through these market cycles by the means of averaging costs.
– See more at: https://www.myuniverse.co.in/learn/investing/mutual-funds/they-say-this-dont-believe-them#sthash.RZfnHG5B.dpuf