Investments have always been touted as a good way of building up and inculcating a habit of savings, while also working towards creating a corpus that can be useful in the near or far future.
Investments usually entail a time period. There are types of investments that are geared for short-term goals, which help you meet specific goals in life, such as a luxurious family trip or even for paying for your children’s education. On the other hand, there are investments that are customised in a manner that help you to build up a fund in the long run. This kind of fund can be utilised for meeting your retirement needs. If you start investing and building up a corpus at the beginning of your professional life, you can ensure that your retirement years are spent in comfort and you do not have to change your lifestyle habits which were cultivated for comfort during your employment years when you had a steady income.
When you begin working, it is natural that you will be bombarded with advice from all quarters regarding how you must invest your funds. It is important for you to step back and first understand what your requirements from an investment are. While you can definitely ask people for assistance, doing your own research is a good way to understand the options available to you.
In recent years, systematic investment plans (SIPs) have gained huge popularity with many investors choosing SIP plans as their preferred investment instrument. SIP investments have emerged as extremely beneficial for meeting a range of goals, across different terms, for different purposes and even for people with very different risk profiles.
Even as the SIP investment plan gains popularity, there is quite a lot of speculation about it in the market. This is natural, considering all the buzz around the need to invest in SIP now. However, several myths have emerged around the SIP investment. Read on to ensure that you have the correct information on your fingertips regarding why the SIP plan is a good investment tool you could have.
There is a common misconception that SIP plans are only for small investors. The myth suggests that only people who want to invest amounts as less at Rs. 500 or Rs. 1,000 should consider investing in an SIP. However, this is entirely untrue. Anybody can invest in a SIP plan, and up to Rs. 1 lakh can be invested provided your KYC process has been completed.
A bullish run occurs when the market is showing an upward trend, and many myths suggest that you must not invest in SIP when the market is being bullish. However, this is a baseless myth since an SIP relies on the rupee cost averaging to guarantee investors their returns and the rupee cost averaging works good over the long-term period, regardless of market conditions.
Another common myth around the SIP investment plan is that this investment instrument is less flexible for investors as compared to other instruments. There are misconceptions that the tenure of the SIP plan or the amount invested in it cannot be changed. Another misconception is that having once invested in a SIP investment, you will not be allowed to discontinue it.
None of these statements are true. An SIP is among the most flexible investment instruments available to people, and one of the easiest to customise according to your specific requirements. With an SIP, you can easily alter the amount you have invested in it, and the tenure for which you are investing. Unlike many instruments which charge you for making these changes to an existing investment, an SIP investment has no penalties for making these changes.
However, some SIP plans do have restrictions regarding the minimum amount that you can invest and the minimal amount of time that you must invest for, in order to be able to reap any rewards at all. Make sure to ask questions about this before you sign on for any particular SIP, to ensure that you understand all the important terms and conditions of your investment.
In line with the rising popularity of the instrument, several myths have come up surrounding SIPs which are seeing a lot of acclaim from across different demographic sets of the population. One common misconception has been that investing in a SIP will guarantee you returns, since your funds are invested periodically into the same nature of investment.
While no investment can ever guarantee you profitable returns, however, if you do invest in SIP, you stand a better chance of earning returns than through a more directly market-linked instrument. This is again owing to the rupee cost averaging principle, which enables you to offset the market volatility by remaining invested for a longer period of time.
The dearth of knowledge in the common arena about investment instruments is evident when you realise that some of the myths are quite contradictory to each other. A common misconception around SIPs is that they invest only on equity market or in the market. This misconception deepens into mistrust, since the equity marketsare notorious for being volatile and affected by a range of issues, including political, economical and social, both locally and globally.
This makes several investors wary because it significantly reduces the chances of earning profitable returns. However, this is not true. The fact is that you can choose which kind of security you would like to invest in, through your SIP investment plan. Based on your goal, requirement as well as risk profile, you can take the call on which kind of security you wish to invest in and thus, have control over your funds.
While we hope that some of the myths you may have heard about SIP investment plans have been cleared, it is important that you conduct very thorough research before you invest in a SIP. Most SIPs can be customized to your terms and requirements, and it will be easy for you to pick the instrument that works good for you once you have identified your requirements.