As the number of sip folios(accounts)are increasing day-by-day, there are several misconceptions in the minds of the investors still today! As AMFI’s(Association of Mutual Funds of India) campaign “Mutual Fund Sahi Hai” prompts investors to do sip’s higher rather than lumpsum investments, sips have gained popularity.
Even though this is somewhat true, mutual fund investors are treating “sip’s”as an safe haven. The popular misconceptions lying in the minds of investors on sip’s are-
- Misconception 1–SIP is only for small amounts– As asset management companies(AMC’s)are encouraging investors to do small amounts monthly, there is a strong belief that sip’s are only for small investors who do smaller sip’s. But the fact is that, there is no maximum cap on the sip amount. The investor can even do 1 Lakh as monthly sip. As already said, there is no maximum cap on the sip amount.
- Misconception 2- Sip can be done only once in a month– There is a strong misconception that sips are to be done in monthly mode. But this is not true! sips can be done-daily, weekly, fortnightly(15 days),monthly, Quarterly(3 months), half-yearly(6 months), annually. The investor has to give a one-time mandate to the mutual fund company as well as the bank to debit the choosen sip amount as per his selected frequency .
- Misconception 3- Sips always generate positive returns– Though sips are recommended to earn positive returns in the market fall, there is a possibility that sips deliver negative returns too in the bear market! But as per the last 3 decades data, investors who stayed patient both in bull and bear phases earn positive returns than seeing the short-term downfall in the market.
- Misconception 4- Sips are to be done in bull market– Generally investors tend to invest more when the market is in bull phase, but refuses to do so in the bear market. But this has to be done opposite- They should invest through sips when the market is in downturn and do lumpsum when the market is in bull run. They should even increase the sip amounts in the bear phases and reap the benefits of the sips in the bull run
- Misconception 5- Sips give guaranteed returns– Though past performance of some funds looks great, this is not identical way to choose sips. Because -“Mutual Funds investments are subject to market risks”. They may or may not sustain the same performance in the future. Your sip returns would depend on the market condition, fund managers capability etc. No guaranty would be given that the sips past performance would repeat in the future. It entirely depends on the market conditions. So your sip returns are not guaranteed!
These are some of the misconceptions on the sips. Though sip is popular as a safe investment tool, one should know about its cons too!