Systematic investment plans (SIPs) are a popular way to invest in mutual funds. They allow investors to invest a fixed amount of money in a mutual fund scheme at regular intervals, such as monthly or quarterly. SIPs have become increasingly popular in recent years, as they offer a number of advantages to investors, here we are decoding the facts and myths.
Read: Simplifying Systematic Investment Plan
Top 4 Facts about SIP Mutual Funds
- Fact 01
Systematic investment plans (SIPs) are a popular way to invest in mutual funds. They allow investors to invest a fixed amount of money in a mutual fund scheme at regular intervals, such as monthly or quarterly. SIPs have become increasingly popular in recent years, as they offer a number of advantages to investors.
- Fact 02
Disciplined investing: SIPs help investors to invest in a disciplined manner, regardless of market conditions. This can be helpful in avoiding emotional investing decisions.
- Fact 03
Rupee cost averaging: SIPs allow investors to buy more units when the market is down and fewer units when the market is up. This helps to average out the cost of investment over time.
- Fact 04
Power of compounding: SIPs allow investors to benefit from the power of compounding. This means that the returns on investment are reinvested into the fund, which results in exponential growth over time.
Busting the Myth
Myth: SIPs and guaranteed returns: One of the most common questions asked by investors is whether SIPs offer guaranteed returns. The answer is simply no. Mutual funds are market-linked products, and their returns are not guaranteed. However, SIPs can help investors to reduce their risk and maximize their returns over the long term.
The fact is that SIPs are indeed a great way to invest in mutual funds. They encourage disciplined and systematic investing, helping individuals build wealth over time. The benefits of rupee cost averaging and the power of compounding are real and powerful tools that can work in investors’ favor.
However, it’s essential to bust the myth that SIPs offer guaranteed returns. Mutual funds are subject to market risks, and their performance is tied to the performance of the underlying assets. While SIPs mitigate the risk associated with lump-sum investments by spreading it over time, they don’t eliminate risk entirely. Investors should be aware that their returns can fluctuate with market conditions, and there are no guarantees.
How to use sips to achieve your financial goals
SIPs can be used to achieve a variety of financial goals, such as retirement planning, child education planning, and wealth creation. To use SIPs effectively, it is important to choose the right mutual fund scheme and invest for a long-term horizon.
How to choose the right mutual fund scheme for sip
When choosing a mutual fund scheme for SIP, there are a few factors that investors should consider:
- Investment objective: Investors should consider their investment objective when choosing a mutual fund scheme. For example, if an investor is saving for retirement, they may want to choose a scheme that invests in equity markets.
- Risk tolerance: Investors should also consider their risk tolerance when choosing a mutual fund scheme. Equity markets are more volatile than debt markets, so investors who have a lower risk tolerance may want to choose a scheme that invests in debt markets.
- Past performance: Investors should also look at the past performance of a mutual fund scheme before investing. However, it is important to note that past performance is not a guarantee of future returns.
How to invest for the long-term
SIPs are a long-term investment strategy. Investors should invest for a minimum of five years to benefit from the power of compounding. Investors should also avoid withdrawing money from their SIPs prematurely, as this can disrupt the compounding process.
Benefits of SIPs
There are a number of benefits to investing in SIPs, including:
- Convenience: SIPs are a convenient way to invest in mutual funds. Investors can set up an SIP online or through their investment advisor.
- Flexibility: SIPs offer investors flexibility in terms of the amount they invest and the frequency of investment. Investors can start investing with as little as Rs 500 per month and can change the amount and frequency of their investment at any time.
- Tax benefits: SIPs in equity funds offer investors tax benefits under Section 80C of the Income Tax Act, 1961. Investors can claim a deduction of up to Rs 1.5 lakh per year for their SIP investments in equity funds.
Before investing in SIP check the Difference between Direct Mutual Funds and regular Mutual Funds.
Conclusion
SIPs are a popular way to invest in mutual funds. They offer a number of advantages to investors, including convenience, flexibility, and tax benefits. However, it is important to note that SIPs do not offer guaranteed returns. Investors should choose the right mutual fund scheme and invest for a long-term horizon to maximize their returns.
