#FinancialBytes: 5 myths about SIPs that need to be busted
Mutual funds are one of the most popular investment choices, and Systematic Investment Plans (SIPs) are an excellent way to invest in mutual fund schemes conveniently. SIPs allow individuals to invest small but fixed amounts regularly in mutual fund schemes. However, there are many myths and misconceptions that investors have about SIPs. Here are 5 myths about SIPs that need to be busted.
Paying SIP installments is compulsory, defaulting invites heavy penalties
Many people believe that paying SIP installments is compulsory, and if they default on paying them, then they would have to pay heavy fines or penalties. However, this is a misconception because there is no fine/penalty. One can typically skip or stop their upcoming SIP installments at their own convenience by providing a written request to the concerned fund manager without any fine/penalty.
#2: Changing the SIP installment amount is not possible
Many investors also think that changing the SIP installment amount is not possible. However, that is not true. SIP is one of the most flexible investment instruments, and investors can change the amount for upcoming installments. Generally, there are no charges associated with such modifications.
SIPs are meant only for small investors
Another huge misconception is that SIPs are ideal for small investors, and those having large funds can't benefit from them. While small investors can put in as low as Rs. 500 a month, large investors can invest lakhs in SIP schemes every month as there is usually no maximum limit. In fact, large investors can generate more wealth by diversifying their investments through SIPs.
SIP mutual funds are different from lumpsum mutual funds
Also, another common myth among investors is that SIP mutual funds are different from lumpsum mutual funds. However, the truth is that both SIP and lumpsum mutual funds are the same as there is no difference between them. SIP and lumpsum are just two different ways to invest in mutual funds. While the former encourages periodic investments, the latter encourages a one-time investment.
#5: SIPs are just for tax saving
Many people also believe that SIPs are just tax-saving plans. However, it is important to understand that SIPs are just an investment method and not tax-saving plans. Using SIPs, one can invest in mutual fund schemes like ELSS funds to save taxes.