One fine day, I spoke to one of my friends where he is investing his money, and the reply was ‘in SIPs.’ I wasn’t surprised to hear this as I have heard this innumerable times during my financial journey. This is one of the common SIP myths that I have come across during my investment career. SIPs are not an investment in themselves but a mode of investment in mutual funds.
One of the easiest ways to invest in mutual funds is through a Systematic Investment Plan (SIP). It is widely used by many as it allows a flexible amount to be invested at the convenience of the investors. While the popularity of SIPs is on the rise, the myths surrounding them are yet to be entirely dismissed. This article will focus on the most four most common myths associated with SIPs.
1. SIP myth 1: SIPs can be done only in equity mutual funds.
This is possibly one of the most familiar myths regarding SIPs. It stems from the fact that since equity mutual funds are more volatile; there are only Equity mutual fund SIPs. However, it’s not true. You can set up a SIP even for other categories of mutual funds, including debt and hybrid funds. Debt-oriented mutual funds allow you to enjoy a fixed income. while a hybrid mutual fund is a dynamic combination of mutual funds where SIPs are invested in both equity and debt and the investors enjoy the equity\’s growth as well as the fixed income from the debt proportion of their holding.
2. SIP myth 2: SIPs, once started, can’t be paused.
This is incorrect. If you are facing a cash crunch, instead of redeeming and exiting, you could just pause your SIPs for a brief period. This option allows you to stop your SIPs for a period ranging from one to three months. Note that the eligibility criteria for pausing SIPs vary across fund houses. To avail of the pause facility, all you need to do is to call up the fund house and convey your intent of pausing SIPs. Today, most fund houses allow an online option to pause your SIP, which automatically restarts after the pause period is over.
3. SIP myth 3: SIPs require a considerable amount.
No, they don’t. SIPs allow you to get started with as little as Rs. 500 per month, which makes them an ideal investment vehicle for everyone who is willing to invest in mutual funds. You can also top-up this amount with a rise in income. This means you can increase the SIP amount in the chosen fund if desired. Topping up the SIP amount can help you accumulate a larger corpus for your goals in the long run. Even an annual increase in the SIP amount by 10% can make a massive difference in the final corpus. Use our SIP calculator to find out the future value of our SIP investments.
4. SIP myth 4: Flexi SIPs are better than regular ones.
Flexi SIP is a type of SIP where you fix the initial investment amount and the subsequent installments are calculated through a formula that invests more when the markets are down and less when they are high. While you can adopt this approach, to assume that it’s better than regular SIP is a myth. Flexi SIPs are akin to timing the market, and it is difficult for even the most seasoned investor to predict the market peak and bottom. The objective of SIP is to keep you invested irrespective of market movements, and in such a scenario, regular SIPs can do the job for you.
The Indian mutual fund industry has about 3.39 crore SIP Accounts by April 2021 through which investors invest in various schemes. SIPs bring discipline into investments and help you build a corpus for multiple life goals in a disciplined and sustained manner.