SIP: Top 5 myths about systematic investment plan that everyone should know
SIPs take a disciplined approach, requiring you to invest a specific amount every month, regardless of market conditions. This allows you to average the cost of your assets across time, minimising the impact of market volatility.
Systematic Investment Plans (SIPs) are a popular option for investors to engage in the stock market without having to pay a large sum of money upfront. However, like with many things, it is not without myths and misunderstandings. Let's take a look at some of these misconceptions and how equity SIPs can help dispel them.
Timing the market is key
People feel that they should purchase when the market is down and sell when it is up. But, it is a myth. Attempting to time the market may be frustrating and time-consuming. Instead, equity SIPs take a disciplined approach, requiring you to invest a specific amount every month, regardless of market conditions. This allows you to average the cost of your assets across time, minimising the impact of market volatility.
The stock market is only for the wealthy
Another common myth is that only the rich may invest in the stock market. However, SIPs have enabled people from all walks of life to participate in the stock market for as little as a few hundred rupees every month. Equity SIPs allow you to begin with a small contribution and steadily grow it over time if your finances improve.
SIPs guarantee profits
While SIPs can be an effective investment strategy, it is crucial to note that they do not guarantee returns. The stock market is volatile, and returns are not guaranteed. However, by staying engaged for the long term and being diligent with your SIP contributions, you can improve your chances of earning reasonable returns over time.
SIPs are only for bull markets
Some individuals feel that SIPs are only effective during bull markets when stock values are rising. However, equity SIPs are intended to function in all market circumstances. Indeed, investing regularly through SIPs may be especially useful during bad markets, when stock values are low. By continuing to invest during these times, you may benefit from cheaper pricing and perhaps earn better profits when the market rebounds.
SIPs are complicated
Investing in SIPs is sometimes seen as difficult, but it is pretty easy. All you have to do is select a mutual fund scheme, determine how much you wish to invest, and create a SIP plan with a mutual fund firm. Once set up, your contributions will be regularly withdrawn from your bank account at regular intervals, making it a convenient method to invest.