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​5 SIP Myths You Need Not Believe In​​​​

If the Assets Under Management (AUM) of the Indian mutual fund industry, standing at Rs. 37,56,296 crores as of Feb 28, 2022, (Source: Amfi India https://bit.ly/3I96wy8) is anything to go by, then it is safe to say that mutual funds are very popular amongst Indian investors. However, when it is about selecting the right way to invest in mutual funds, there are several myths can confuse a beginner investor from making the right investment decisions.

You can either invest a lump sum amount in mutual funds or choose the Systematic Investment Plan (SIP) route. It is the latter option around which you can find several myths. In this blog, we will try to debunk some of the most common myths about SIP.

1. SIP is a type of investment product

Many investors tend to think about SIP as an investment product. While there are several benefits of investing in SIP, it is not a product in itself, but a way to invest in mutual funds.

Unlike one-time lump sum investments, you can continue to invest regularly via SIP. The amount you wish to invest periodically in the chosen funds gets automatically deducted from the linked bank account. Before investing in mutual funds, you must clear this doubt about SIP.

2. SIP is only meant for smaller investments

SIP allows people to start investing with an amount as low as Rs. 500 so that anyone can easily begin their investment journey. However, many people feel that the SIP route is for those who can only make small-ticket investments, which is not true.

As an investor, you can register an SIP for any amount that you want to invest. Even wealthy people know about SIP as an alternative to lumpsum investments and prefer to invest this way.

3. You Can Only Invest in Equity Funds via SIP

A common misunderstanding about SIP is that you can only use it to invest in equity funds. SIP is more of a method that allows you to channelise your investments into the right type of mutual funds based on your financial goals. Hence, if you have a short-term goal, you can invest in debt funds via SIP or select equity funds for the long-time horizon.

4. You cannot withdraw SIP whenever you want

In simpler words, withdrawing an SIP means asking for the already-invested amount while also not continuing to invest in the chosen mutual funds. It also means selling all the mutual fund units on the current NAV. Investors often do this when they face financial emergencies.

The truth about SIP is that you can easily withdraw the amount invested in open ended mutual funds, provided the lock-in period of the chosen fund (if it has any) is over. For example, ELSS has a lock-in period of 3 years and you cannot withdraw before that. You may also have to pay exit load for withdrawing an SIP, if it is applicable. You need to place the request to sell your mutual fund units and confirm your transaction. The time taken to settle the amount into your bank account may vary from one fund to another.

5. SIPs have longer lock-in periods

The lock-in period in mutual funds is the period during which you cannot redeem the units post-purchase. It means you have to stay invested in a mutual fund for this minimum period. It varies depending on the type of mutual fund you invest in.

Since SIP is a method of investing and not a fund in itself, there is no lock-in period linked to an SIP.

Conclusion

Mutual fund investments require you to gain adequate knowledge of various related aspects. Besides the market volatility, believing in myths about SIP can cause significant losses and prevent you from making the right investment decisions.

Is SIP safe?

The safety of capital depends on the chosen financial instrument and market volatility. Since SIP is just a mode of investing in mutual funds, there is no such safety element involved in it.

Can I withdraw SIP anytime?

You can withdraw SIP as per your needs or preference in most cases. However, if you have invested in mutual fund schemes with a lock-in period, withdrawing SIP before this period is not possible.

What is the lock-in period for SIP?

SIP, as a payment mode, does not have any lock-in period. However, the actual lock-in period depends on the types of mutual funds you choose to invest in via the SIP route.

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Disclaimer:
Helpful information for investors: All Mutual Fund investors have to go through a one-time KYC (know your Customer) process. Investors should deal only with registered mutual funds, to be verified on SEBI website under 'Intermediaries/ Market Infrastructure Institutions'. For redressal of your complaints, you may please visit www.scores.gov.in . For more info on KYC, change in various details & redressal of complaints, visit mf.nipponindiaim.com/investoreducation/what-to-know-when-investing This is an investor education and awareness initiative by Nippon India Mutual Fund.

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.
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While utmost care has been taken in translating the article into respective regional language(s), in case of any confusion or difference of opinion, article available in English language should be deemed as final. The article provided herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional advice for the readers. The document has been prepared on the basis of publicly available data/ information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of loss of profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this article.
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