[Std-08]August Month Unit test Question Paper & Solution 2020
Let us bust six common SIP myths one by one:
SIP is an Investment Product by itself
The financial advisors usually encounter the questions like “which is the best SIP’, ‘what returns will a SIP give?’ etc. When people encounter the concept of SIP investment for the first time, they often tend to believe that some investment product is being pitched to them. However, they must realize that it is not an investment product, but instead an investment facility, which allows the investors to make regular investments. When one registers a mutual fund SIP, it must be registered along with the name of the mutual fund scheme as well as the periodicity. Thereafter, the investment amount will be deducted automatically from your bank account and invested in the pre-specified mutual fund scheme.
SIP guarantees positive returns in Investments
Ensuring guaranteed positive returns in their investments is always an investor’s preference. They tend to consider investing in SIPs as a guaranteed measure to eliminate the risk of negative returns. However, even SIPs are prone to negative returns, even while they mitigate such risk over the long term, as they make investments across the market trends.
Investing through SIP provides the benefit of Rupee Costs Averaging (RCA) to the investors, which means that the cost of investments gets averaged through the market ups and downs. Further, the historical analysis of CRISIL-AMFI Equity Fund Performances’ Index over the last 15 years revealed that the instances of negative returns reduced to zero with a SIP investment period of 5 years and more (Source – CRISIL AMFI 2019 Mutual Funds Handbook, period – July 2004 to June 2019). As such, while investing through SIPs may not guarantee any positive returns, the financial discipline of investing through SIPs may help the investors mitigate the risk of negative returns.
SIP is only for small investors
SIPs are generally promoted as a medium to make savings even as low as Rs. 500. As such, it is often felt that SIP may be registered only for making small-ticket investments on a regular basis. However, this is not true, and the investors may register SIP for any amount as they may prefer on the higher side. In fact, a substantial SIP instalment amount may help the investors accumulate a substantial amount towards their financial goals in the longer run.
SIP may be done only for equity funds
One may believe that SIP is to be done only for equity funds, as such funds are more prone to market volatility. However, investing through SIP is equally beneficial in debt funds as well. Investing in debt funds through SIP is akin to opening a Recurring Deposit (RD) with banks but with the potential of better returns. SEBI allows a wide range of equity and debt schemes to be offered by mutual funds. Even within the bouquet of debt funds, one may choose to invest in gilt funds, duration funds, credit risk funds etc. depending upon their risk appetite and return expectations.
SIP should be done during Bull Market
People often tend to be emotional during the market movements. The fear of investing at higher valuations and then generating negative returns may cause the investors to stop their SIPs while the markets are rising, especially since they will receive a lower number of units per SIP instalment. However, they must realize that SIP is a medium to invest across the market directions. Stopping fresh investments may cause the investors to miss an opportunity to gain from further market rallies. Further, SIP is itself an investment facility to eliminate emotional bias in investing and using your emotions for your investment decisions may adversely affect the investment journey.
SIP Investments may not be modified once registered
One may be in dilemma while registering a SIP, as such registration may call for long term commitment towards investing regularly. However, it is indeed the beauty of SIP investing that the investor enjoys the liberty to stop the SIP and register a new SIP with the modified periodicity, amount, and even the mutual fund scheme. As such, SIP allows complete flexibility to the investor to make changes to their investment plans.
So now that you have cleared your doubts about investing in mutual funds through SIP take a step ahead towards investing right away and start investing towards your financial goals.
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