{"id":9585,"date":"2021-07-02T01:01:00","date_gmt":"2021-07-01T19:31:00","guid":{"rendered":"https:\/\/www.apnaplan.com\/?p=9585"},"modified":"2021-07-02T01:21:37","modified_gmt":"2021-07-01T19:51:37","slug":"sip-myths-mutual-funds","status":"publish","type":"post","link":"https:\/\/www.apnaplan.com\/sip-myths-mutual-funds\/","title":{"rendered":"Is SIP a Mutual Fund? & 13 Common Myths about SIP Debunked"},"content":{"rendered":"\n
Is SIP a Mutual Fund? What is the difference between Mutual Funds Vs SIP? <\/strong>These were some of the questions I was asked by some one close to me and obviously not financially savvy. <\/p>\n\n\n\n I think SIP or Systematic Investment Plan have been marketed so well by mutual funds<\/a> that it has been misunderstood by a lot many as a silver bullet of investment. <\/strong>This may be good for mutual fund business but not for investors. Some people think SIP is safe, SIP is Tax Free and SIP pays Interest. In this post we try to debunk and clarify some of the commonly misunderstood points of SIP.<\/p>\n\n\n\n SIP stands for Systematic Investment Plan.<\/strong> As the name suggests its a “systematic” way of putting money in Mutual Funds. You can decide on a fixed date every month (quarter or even each working day), where the money is automatically deducted from your bank account and used to purchase mutual fund units. You can decide on the amount of investment, the fund you want to invest, the dates with some conditions. The basic idea of recommending SIP is it automates your monthly investment, taking emotions out and hence encourages regular saving.<\/strong><\/p>\n\n\n\n As many want to make you believe SIP is silver bullet of investment. This is not true. It is a good way of investment and suits someone with regular income. It inculcates discipline in investment and helps you save without any emotion of the stock markets.<\/strong> It also suits if you want to invest in equity mutual funds over long period as it takes care of market volatility to an extent. <\/p>\n\n\n\n However, there are times when investing all your money as lump sum is a better idea especially when markets are undervalued. We have a detailed post comparing SIP Vs Mutual Fund<\/strong> Lump sum Investment – and what works in which situation.<\/a> Next we list the myths and the facts about SIP.<\/p>\n\n\n\n No SIP is not a mutual fund. Mutual Fund is an investment instrument where you invest money and get returns. However SIP is a disciplined approach to invest money in Mutual Funds.<\/strong> Mutual Funds can be of multiple types depending on what they invest into. Mutual Funds can be equity based if they invest majority of their corpus in stock market, it can be Debt Fund if they invest majority of their corpus in debt instruments. Similarly there can be Gold Mutual Fund, Global Mutual Funds (depending on geographical markets they invest) and so on. However you can still do SIP in all these funds.<\/p>\n\n\n\n Truth:<\/span> <\/strong>You ask certain people about their investment and you are told they are in investing in SIP. Well SIP in itself is not an investment it\u2019s just one of the methods of investment<\/strong> wherein you can invest a fixed sum for a pre-defined period in selected mutual fund schemes. The actual investment is the mutual fund scheme you are investing in.\u00a0Also there is NO SIP fund. Some think that mutual funds have different version of funds \u2013 one for SIP and other for lump sum!<\/p>\n\n\n\n Truth:<\/span> Nothing can be farther from truth. Most projections show positive results over long run as they always assume a fixed percentage return. <\/strong>Unfortunately this is not how stock markets behave. There returns can be as extreme as getting halved in a year to doubling or may be give absolute 0 return in a year. So in case you calculate SIP returns in year the market has crashed you may have negative returns even in long term (and so would lump sum investment). Also if the returns are always positive lump-sum investment would give higher returns than SIP.<\/strong><\/p>\n\n\n\n Truth:<\/span> There is No best way to invest. SIP is suited for people with regular income like salaried while lump sum investment is more suited for irregular income like self-employed or when you get lump sum money. Also its always good idea to top-up SIP or invest lump sum at times when market valuations are low.<\/strong><\/p>\n\n\n\n There is always a debate on what is the right way to invest in Mutual Funds – SIP or lump sum? We give you examples and situations on which of the investment method outperforms. Do read SIP Vs. Lump sum \u2013 Which is the Best way to Invest in Mutual Fund?<\/a><\/p><\/div><\/div>\n\n\n\n Truth:<\/span> As I said in the earlier point that some people confuse the SIP as investment whereas but the important point is to select the right set of funds to invest. In case you choose under performing fund lump sum or SIP, both would give poor returns.<\/strong><\/p>\n\n\n\n Truth:<\/span> SIP is well suited for equity mutual funds <\/strong>as it removes emotions while investment and helps to take advantage of volatility. However in case of debt funds, you should not do SIP if you can invest lump-sum as there is no volatility in most cases.<\/strong> In case you want to invest at regular intervals like recurring deposit to accumulate some amount, SIP in debt mutual funds make sense. Also in most cases, SIP in debt funds is more tax efficient than recurring deposit<\/a>.<\/p>\n\n\n\n Truth:<\/span> SIP is a way to take advantage of volatility and hence should be continued irrespective of market levels. Start SIP when you are able to do it, but as stated earlier do top-up SIP with lum sum when you feel market valuations are low. Also SIP in Mutual Funds create real wealth if done over long periods of time without interruption.<\/p>\n\n\n\n Truth:<\/span> There are monthly, quarterly and now daily SIPs options available for investment in mutual funds. However we did analysis few years back and concluded monthly SIP suits most investors as it matches with the cash inflow<\/a> (most people have monthly income).<\/p>\n\n\n\n As the stock market soars, so does the Mutual Funds NFOs. However our analysis says that NFOs are more profitable for sellers and the companies selling them rather than people investing in them. There are only few NFOs worth looking at. Read the detail on Why investing in NFO may not be a great idea. <\/a><\/p><\/div><\/div>\n\n\n\n Truth:<\/span> SIP date is irrelevant and we have analysis to prove that. <\/strong>My idea is to have SIP on date which is closer to your salary date as you can easily fulfil you investment commitment before anything else. Also in case you have multiple SIPs you can spread it out across different dates in a month<\/a> in case you are worried about what if market falls after you invest – This is just an emotional piece rather than actually making a difference in your overall returns over long periods of time.<\/em><\/p>\n\n\n\n Truth:<\/span> The above myth is result of many people equating the SIP investment with EMI that they pay on loan. You must understand that EMI is your liability and legally you have to fulfil that however SIP is voluntary which you are doing to create wealth. You can always stop SIP midway by writing to the respective fund house<\/a>. Even in case you do not have sufficient funds in bank account on SIP date, the worst charges you would face is of \u201cinsufficient funds\u201d and that too by your bank and not mutual fund. This no way impacts your credit score<\/a> (in case someone may be wondering if the bounce auto-debit above would be recorded negatively).<\/p>\n\n\n\n Truth:<\/span> As we stated earlier it\u2019s a good idea to top up SIP investment with lump sum investment when market is low and you have money. You can use the same SIP folio number for lump-sum investment.<\/p>\n\n\n\nWhat is SIP?<\/h2>\n\n\n\n
Why is SIP a good way to Invest?<\/h2>\n\n\n\n
Is SIP a Mutual Fund?<\/h2>\n\n\n\n
Myth 1: SIP is an Investment Instrument<\/h2>\n\n\n\n
Myth 2: SIP is Safe – It would always give positive returns in the long run<\/h2>\n\n\n\n
Myth 3: SIP is Best way to invest<\/h2>\n\n\n\n
SIP Vs. Mutual Fund Lump sum \u2013 Which is the Best way to Invest in Mutual Fund?<\/strong><\/h4>
Myth 4: With SIP fund selection is NOT important<\/h2>\n\n\n\n
Myth 5: Should invest in all mutual funds via SIP<\/h2>\n\n\n\n
Myth 6: Market too high to start or continue SIP<\/h2>\n\n\n\n
Myth 7: Daily SIP is better than Monthly SIP<\/h2>\n\n\n\n
Why Investing in Mutual Fund NFO is a Bad Idea?<\/strong><\/h4>
Myth 8: You can get better returns by timing the SIP date<\/h2>\n\n\n\n
Myth 9: You cannot stop SIP mid-way or there is penalty if you skip SIP\u00a0instalment<\/h2>\n\n\n\n
Myth 10: I cannot make lump sum investment in a fund where my SIP is running<\/h2>\n\n\n\n