Many investors are wary of the fact that once an SIP is initiated, it cannot be altered – this is not true. SIPs are considered among the best ways of investing in the capital markets that provide flexibility in the mode of investing.
It is important to understand that once an investor finalizes their SIPs, the amount, period and even the mutual fund scheme can be altered. Investors have the freedom to change the investment amount and the tenure as per their requirements. Investors can change the amount of the SIP if their income increases or decreases and if they plan to save or invest more.
Many investors believe that mutual funds with lower net asset value (NAV) are cheaper and hence would yield higher returns. Even though the NAV plays an important role while investing, it does not signify the return that the mutual fund scheme can offer.
The NAV of a fund is the value at which an investor purchases or sells mutual funds units. The NAV of a fund changes regularly. The cost of mutual funds (NAV) does not determine the returns.
For example: If someone wants to invest INR 10,000 and has two options: One fund has NAV of INR 100 and the other fund has NAV of INR 1,000. With a lower NAV fund, a person can buy 100 units and with higher one, a person can buy 10 units, but in either case, the sum invested is INR 10,000, the value of investment being identical. Hence, investors should focus more on the actual performance of the fund rather than just the NAV.
Myth 6: SIP is Subject to Guaranteed Returns
SIPs grants the investors the ability to invest in the mutual funds periodically. Investing through SIPs in the mutual funds is safer compared to the equity markets yet mutual funds are subject to market risks depending on market volatility.
In the short run, it is difficult to attain guaranteed returns for an investor while being invested in mutual funds for the long term helps yield capital appreciation. Thus, investors should be clear that investing in the market carries some degree of risk and thus one needs to be prepared before investing. Investing in mutual funds through SIPs gives the investor the benefit of rupee cost averaging (RCA).
Myth 7: Don’t Invest Through SIP in a Bullish Market
Investors need to see-through the level of discipline, patience and research required while investing in mutual funds. Most SIPs yield results over the longer term. It is not practically possible to time the markets in real-time. Buying at dips and selling at highs is theoretically possible but is not feasible when it comes to practical decisions.
In the longer time frame, SIP investments usually deliver higher yields. It is crucial to understand that bullish and bearish phases require consideration in case you are investing through the lump sum method.
As investors invest through SIPs, the rupee cost averaging eradicates the impact on portfolio with the passage of time. SIPs negate the impact of market volatility on your portfolio. Thus, investing in mutual funds through SIPs doesn’t require investors to wait for the right time. It is important for people to understand the importance of early investing and reap the benefits of compounding.
If you are looking to start your investment journey via SIP, make sure you look for a long-term perspective. Considering SIP investing is all about discipline, a sound approach coupled with patience can lead to wealth creation over a period of time.
Additionally, investors should also keep in mind the historical data of mutual fund performance. There is no right time to start your investment in mutual funds. The sooner you start your investment journey, the better returns you can expect to yield in the future.