Eight myths about SIPs
Just like ‘little drops of water make a mighty ocean’, Systematic investment plans (SIPs) allow investing smaller amounts systematically over a longer period of time. While SIP is a great way to invest, there are few myths related to SIPs which are rooted in the imagination and not in reality. Let’s burst some of them.
Myth 1: SIP is equal to mutual funds
Truth: SIP is not an investment. In fact, it is a ‘method of investing’ in any asset class. It is a vehicle to invest. Clearly, one doesn’t invest in ‘SIPs’ as one invests in different investment schemes through ‘SIPs’. Therefore, apart from mutual funds, one can do a SIP in PPF, ULIPs, and bank recurring deposit also.
Myth 2: I can’t change my asset class after I start SIP
Truth: It is possible to change your asset class, even if you have started investing. Many investment options like ULIPs come with a fund switching option, which means that you can switch funds between equity and debt as per the market condition. For instance, if there is a fall in the market, you can switch your funds from equity to debt to protect your funds from market volatility. When the market improves, you can switch back to equity to reap the maximum benefits.
Myth 3: I will be penalized if I miss one or two SIP dates
Truth: In a SIP, you are making an investment every month and therefore, there is no question of penalizing you if you miss one or two SIP dates. This is not like the EMI of your loan in which the lender penalizes you if you miss an installment. As a matter of fact, you should not miss your investment date; however missing one or two SIP dates is not a crime.
Myth 4: SIP investments don’t give tax benefits
Truth: A systematic investment made in equity-linked saving schemes (ELSSs) is eligible for tax benefits under Section 80C of the Income Tax Act. Further, payouts received are also tax-free under the Income Tax Act. However, an ELSS comes with a lock-in period of 3 years.
Myth 5: SIP should be started when the market is low
Truth: It is the ‘time’ and not ‘timing the market’ which should be considered. SIP works when you give it sufficient time. Therefore, any time is good to start your SIP. Further, as a fixed sum of amount is invested systematically at a pre-decided interval, SIPs protects investors from through its approach.
