3 SIP myths common among clients and their reality

3 SIP myths common among clients and their reality

Finance & Accounting

Suraj Rengan

Suraj Rengan

200 week ago — 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:


1. Frequent SIPs give higher returns

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.


2. One invests ‘in’ a SIP

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


3. Not continuing SIPs during the bear phase is beneficial

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.


Also read: How to participate in the decision-making process of your clients


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Suraj M Rengan

Suraj Rengan, originally from Trivandrum, Kerala, India. Our company is in the overseas education consultancy industry named, (www.vizainternational.com) Viza International UK Ltd...