Common Myths about SIP

Trusted Financial Advisor

Financial Radiance is proud to be associated with Chalo Niveshak initiative – one nation one brand for financial advisors. Given below is a blog originally written by Chalo Niveshak on this topic. This blog is written to clarify the myths around Systematic Investment Plan (SIP).

The dabbling in the stock market is not everybody’s cup of tea. There is a chance that you may burn your fingers as an investment in the stock market requires a certain amount of knowledge & expertise about shares and functioning of the stock market. Mutual Funds offer you an opportunity to invest in the stock market and reap the benefit of higher returns. The most popular way of investment in the any Mutual Fund is investment through Systematic Investment Plan, popularly known as SIP. SIP has emerged as the most disciplined way of investment in the stock market through Mutual Funds.

What is SIP:

SIP is the simplest and easiest way of investment in the stock market through Mutual Funds. The functioning of the SIP is similar to Recurring Deposits Scheme of a Bank. But SIP has certain advantages over bank RD. Every month you can invest a certain amount in SIP. You can start with as little as Rs 500 pm. After pooling the amount from various investors amount is invested in various Mutual fund schemes i.e. Equity or Debt. MF is managed by professionals called fund Manager. Investors get the professional services in managing the funds and get a better return on their investment to build a handsome corpus over a period of time.

Common myths about SIP busted:

Myth 1: Only big Investors can invest in MF

SIP offers the opportunity to small investors also to participate in the stock market through MF. You can start a SIP with a small amount of Rs 500 pm. You may invest a fixed amount on a daily, monthly and quarterly basis. SIP works like a Piggy Bank through which all of us might have saved in our childhood.

Myth 2: Lump sum amount cannot be invested in SIP a/cs

In SIP a/c also one can invest lump sum amount as a top up, without affecting the SIP. SIP will continue as per the original amount and period opted.

Myth 3: SIP Fund and Lump sum funds are different

There are no separate funds for SIP and Lump sum investment.SIP is a mode of investment. Which offer the convenience of investment in periodical intervals and freedom of choosing the amount of SIP as per financial capabilities.

Myth 4: SIP to be started when the market is high

SIP can be started anytime. You need not to wait till market become buoyant or at high.SIP funds are invested in the market regularly at various levels which offers your investment benefit of rupee cost averaging.

Myth 5: Penalty for missing SIP installments

SIP installments are debited to your bank account on a specified date as per the mandate given by you. You are required to maintain the balance in your account in order to meet SIP installments. Due to some unforeseen circumstances, if you miss your SIP installment for 1-2 months, you need not to worry. There will not be any penalty nor your SIP a/c will become inactive. You may continue your SIP again after providing balance in your account. Please note that if you miss your SIP consecutively 3 times your SIP mandate will be canceled by your bank. In that case, you have to lodge a fresh mandate to restart your SIP.

Myth 6: In SIP in ELSS, entire money can be withdrawn after 3 years

It is a common misconception that amount invested in Equity Linked Savings Schemes(ELSS) through SIP  can be withdrawn after a lock-in period of 3 years. In fact, each SIP installment has 3 years lock-in period separately.One has to understand this very clearly before investing in ELSS through SIP.

Myth 7: SIP offers high returns

SIP does not guarantee higher returns. It is a mode of investment only. Mutual Fund investments are subject to market risk. One can expect a better return in a long term only. If you want to save for a certain expenditure in the future then you should have an investment horizon as per your financial goal.

SIP is a convenient mode of investment in Mutual Fund Schemes. But it requires a certain amount of discipline in your financial planning. You have to invest regularly as per your investment horizon and risk appetite to meet your financial goal in long term.

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