How Safe Is It to Invest in the Mutual Fund SIPs?
Investments have to be safe, else they don’t have any worth for the investors. There isn’t any sense of making an investment in such an alternative that makes your money get affected even with small corrections in the market. Mutual funds are often recommended as the safest investment avenue to grow wealth, but are you sure that they have enough capacity to provide risk-free returns? Here’s we will find the exact solution for the same.
Systematic investment plans have been regarded as the most effective way of investing in mutual funds. It fetches the benefit of averaging and compounding which ultimately lead to making greater income over time. Even if the market is highly volatile, the investments in such plans are recommended as the safest one. Major benefits of investing in mutual fund through SIP include:
Rupee-Cost Averaging - This is a method which simply buys more when the price is low and less when it is high. This is the primary advantage of an SIP on which it is being sold and marketed, but does it really benefit the investors in the same way.
Regularity of Investments - By regularising the investments through a systematic and mechanical method, SIP helps in bringing discipline in the investors to do regular savings. It removes the human judgement from the decision-making process and helps one stay focused on achieving the set goals through regular investing.
The Power of Compounding - Instead of providing returns on the simple interest basis, the SIPs offer compound returns. Accordingly, one fetches ‘interest on interest’ and creates higher values on their invested capital.
Although there are several benefits which are being offered by the mutual fund SIPs to the investors, some of the misconceptions are also there which have made SIP a supernatural thing. Let’s gain knowledge of the same.
Misconception 1 - SIP generates higher returns than lump sum investment
Fact - There is no connectivity of the facts that SIP and lump sum returns are indifferent. The performance of both the investments is linked with the market trends. However, during the negative scenario in the market the overall investment cost in SIP is less in comparison with that of lump sum, and hence the SIP returns are less negative during such phase. On the flip side, during the positive market, the SIP returns are always consistent.
Misconception 2 - SIP always offers positive return over the long term
Fact - This statement is based on the assumption that equity markets always go up over the long term. In case, the performance of equity market falls due to any of the reasons even, in the long run; there are no chances of positive or favourable returns in the SIP investments as they are based on market performance only. Furthermore, if the market goes up in the long run, then obviously SIP will provide higher profits.
Misconception 3 - SIP gives positive returns always due to "rupee cost averaging"
Fact - The rupee-cost averaging is a good thing showcasing the benefit of SIP over lump sum. However, it works in favour or against of the investor on the basis of bullish or bearish phases of the market. If the market is bull, then cost averaging would work against and vice versa.
So if you wish to make the most of SIP investments, then you need to be aware of the misconceptions and facts so that you don’t miss out the desired goals. Staying updated and well aware is the right and responsibility of every investor, and you must adhere to it.
At MySIPonline, you can avail the services of online investing to buy the best plans of SIP. Get in touch with us to make the right decision of investment.
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