Planning a SIP? Avoid These Costly Misunderstandings
SIP Investing: Facts You Must Know Before You Start: Systematic Investment Plans (SIPs) in mutual funds have become extremely popular among Indian investors. Millions of people are investing small amounts each month to build a large corpus over the long term.
Some people assume it promises guaranteed returns, while others dream of promised returns ahead of time. These misconceptions often lead investors into trouble, impacting long-term results. Let’s know some misconceptions about SIPs.
1) SIPs don’t guarantee high returns immediately: Many new investors assume that starting an SIP will yield stable and high returns every year. Social media also promotes it as an easy way to get rich quickly, but the truth is different. SIPs aren’t a shortcut; rather, they offer the potential for better returns over the long term.
The benefits come from timely and regular investment. If a fund’s performance is weak, even an SIP won’t work wonders. Solid growth is usually seen only over long periods of time, such as 7, 10, or 15 years.
2) More funds don’t guarantee better returns: There’s often a misconception among SIP investors that adding more funds to a portfolio will increase returns. This leads many to start SIPs in 8-10 different funds without understanding them thoroughly.
But this approach isn’t always beneficial. Having too many funds makes managing a portfolio difficult. It’s wise to choose 3-5 strong funds. Expert assistance can also be sought. SIP investments should be balanced according to your goals.
3) Stopping a SIP is a mistake: It’s often a common misconception that SIPs should never be stopped or discontinued. However, this is incorrect. Circumstances change, and income can fluctuate. Emergencies can arise, or your financial goals can change.
SIPs are not legally binding. They can be stopped or discontinued as needed. If a fund consistently underperforms, it may be wise to switch to a better one.
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