Myth #1:Small investors go to SIP only Please note that SIP stands for Systematic Investment Plan (SIP) instead of Small Investors Plan. Consequently, it is wrong to be under the illusion and arrogance that SIP is intended only for small investors.
SIP is for everyone if you want to create wealth systematically. Just as you subscribe with a piggy bank and recurring deposit to the habit of saving regularly with the necessary discipline, so do SIPs. And you have a higher rate of return compared to parking money in fixed deposits, recurring deposits and endowment policies offered by insurance companies.By systematically investing your savings – daily, monthly, quarterly – for a given tenure (SIP period) helps you build a corpus that earns a return rate to achieve your financial goal.
Myth #2: It is also possible to average rupee costs by investing in stock–then why SIP?
A single-scrip SIP can expose you to more volatility in mutual funds unlike SIP, which reduces the risk due to the diversification, professional fund management and liquidity offered by mutual funds.
In addition, depending on your risk appetite, you can also strategically structure your portfolio according to the market cap bias (i.e. large cap, mid cap and small cap) that a fund follows. You can also structure your portfolio based on the investment style (viz. value, growth, mix, opportunities, flexi-cap, multi-cap, etc.) followed by the mutual fund.And by adopting the SIP mode of investing for mutual funds, you'll draw two major benefits: rupee cost averaging and compounding.
Myth # 3: SIP mutual funds differ from lump sum mutual funds A lot of people have this delusion. The fact is, there are no special investment schemes for SIP. SIPs are just an investment mode.
Myth #4: Lump sum investments can not be made in a scheme where, as you now know, a SIP account exists, is simply a way to invest in mutual funds. Therefore, it is possible to pump a lump sum to a mutual fund where your SIP exists. So, say you've got a Rs 1,000 SIP going on in a mutual fund scheme and suddenly you've got a surplus of Rs 50,000 say, you can pump a lump sum to your current Rs 1,000 SIP account.
Myth #5: I will be penalized if I miss one or two SIP dates You are required to submit a NACH (National Automated Clearing House) mandate from the NPCI (National Payments Corporation of India) form together with the common application form when you register for the SIP investment mode. Your SIP details (as selected) are mentioned in this mandate apart from the SIP form, so your bank will continue to debit the SIP amount on regular SIP dates in favor of the fund where you have chosen a SIP. In these forms, the start date and end date are mentioned. Your contact details are also available for you to update on your transactions. Therefore, the issue of missing dates does not usually arise.
However, for some reason –say, you haven't kept your bank account balance–and a SIP installment doesn't get debited, you just miss that installment, but the folio / account remains active for additional SIPs to debit from the bank account. So, it's not like your loan's EMI (Equated Monthly Instalment), where you miss an installment.
Similarly, if you face financial crunch, fund houses today also allow you to pause your SIPs for 1 to 3 months until the return of normalcy. So, you shouldn't worry about a short-term crunch for your SIPs. In the following part of this editorial piece, the SIP pause facility is explained extensively
Myth #6: Markets are high to start a SIP Well, if you think so, you should start a SIP right away. That's because as the market corrects you'd lower your average purchase cost by accumulating more units, with every fall in the NAV. And, as the markets once again post the correction surge, you'd gain as the yield works to be higher.
Myth #7: In a tax saver SIP, all money can be withdrawn after 3 years In the case of a SIP in tax-saving mutual funds (commonly known as Equity linked Saving Schemes–ELSS), very often there is an illusion that all investment in a tax-saving mutual fund can be withdrawn once the lock-in period has expired. That's not the case, though!
The fact is: the lock-in tenure should have been completed by your every SIP installment. So say if in the month of January 2017 you put Rs 5,000 through SIP, the lock-in period for just 1 instalment (i.e. January 2012) will be over by January 2020. While other SIP installations must also be completed for 3 years.
The fact is: the lock-in tenure should have been completed by your every SIP installment. So say if in the month of January 2017 you put Rs 5,000 through SIP, the lock-in period for just 1 instalment (i.e. January 2012) will be over by January 2020. While other SIP installations must also be completed for 3 years.
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