15 Sep 2020, 16:01 — 3 min read
Systematic Investment Plans (SIP) is a specific amount, invested for a continuous period at regular intervals, generally monthly. Using this method, an investor buys units of a scheme at a pre-decided frequency. SIPs are a useful tool to multiply your wealth, but their growing popularity has resulted in certain misconceptions among investors. Given below are three popular myths that your clients might have about SIPs and what the reality is:
Investing money in equity funds in a systematic manner assists to average out the investment amount and take benefit of market fluctuations. However, some clients have the general idea that if they increase the frequency of SIP investment to fortnightly or daily, they will obtain better returns.
Time after time, research has shown that this kind of investor behaviour has no impact on earnings, and it only adds to the operational troubles for investors. Financial advisors must clear this misconception by explaining to their clients that monthly SIPs are the ideal way to gain from market ups and downs.
Financial experts might often hear from their clients that want to invest ‘in’ a SIP or express it in the same way to others. The fact that a person invests ‘through’ and not 'in' a SIP in mutual funds. Make clients understand that SIPs are not any category of investments on their own; they are a method to invest in a particular fund. In due course, returns are driven not only by SIPs but by the primary fund.
Also read: Lessons in prosperity from the owl
At the time of a bear phase, few clients stop their SIPs because of the fear of losing money. When markets pick up, they reinvest. When SIPs are discontinued during the bear phase, the client misses the chance to average out the buying price. However, they will suffer an opportunity cost when the market unexpectedly begins racing.
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