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Mutual Fund | March 07, 2019

Beware of these myths about SIP investing

SIP is the matter of the moment.

No matter how gullible you are as an investor, the word ‘SIP’ might have caught your attention in one way or the other.

What do you understand by SIP? Systematic Investment Plan is an investment approach wherein an investor is required to dedicate the same amount of capital in a specific mutual fund at every stipulated time interval.

In the ever-rising world of knowledge, it is common for us to develop our own set of opinions. However, it is important for you to understand whether you are living with unvarnished truth or in a fool’s paradise.

The following article helps you unravel the opaque world of investment by mentioning common myths and their facts regarding SIP:

1. Myth: SIP is a separate asset class like equity, bonds or Invest in mutual funds investments.

SIP is not an asset product but a medium to invest in one. You can invest in equity or mutual funds with the help of this wonderful tool called SIP. By definition, it stands for dedicating a particular amount each interval in your choice of investment vehicle.

2. Myth: SIP is only for small investors

It won’t be untrue to state that SIP investments have enabled the small investors to enjoy the substantial returns from the mutual fund. But this doesn’t limit the usage of this versatile avenue. It not only helps you in averaging rupee cost but also plants the discipline of investing regularly. There is no upper limit amount and you can invest 10 lakhs to 50 lakhs per month also.

3. Myth: If you start investing in SIP, it is not possible to invest the lump sum amount

Is this your bonus month and have got a little extra cash? No worries, that can be easily adjusted in your SIP account without any hassles. Just like a bank account, you get a folio number which can be used to transfer any amount of funds.

4. Myth: SIP can be done only by individuals

This is a very common and widely accepted myth. However, you can definitely invest in the name of your company by going through the KYC documentation similar to an individual. There is an array of mutual funds which can provide a better return than your current account and tax-benefits also at the same time.

5. Myth: Daily SIP is better than Monthly or quarterly SIP

With the advent of a variety of options, daily SIP is a step forward. It allows an investor to contribute as low as Rs.10 per day. Although, the nitty-gritty supersedes the sheen of this option. It can lead to investment tracking burdensome. Also, the returns from daily options aren’t even better than that of monthly.

6. Myth: I have to bear a heavy penalty if I miss any instalment of SIP

The mutual fund industry is not bound to charge you with any penalty if you miss an instalment. Neither your credit score is going to be conceited. The only consequence of missing your period SIP is you won’t be able to purchase the mutual fund s units of that month. SIP is not your liability but your voluntary step to your financial independence.  

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