Systematic Investment Plans (SIPs) have become immensely popular with lakhs of individuals opting for them. SIPs definitely are an effective tool to multiply your wealth, but their growing popularity has resulted in certain misconceptions among investors. Given below are 3 popular myths that your clients might have about SIPs and what the reality is:
- 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 wrong idea that if they increase the frequency of SIPs to fortnightly, weekly or even daily, they will obtain better returns.
Time after time, research has shown that this kind of investor behavior has no substantial 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.
- One invests ‘in’ an SIP
Financial experts might often hear from their clients that want to invest ‘in’ an SIP or express it in the same way to others. The fact is that a person invests ‘through’ an SIP in mutual funds. Make clients understand that SIPs are not a 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.
- Discontinuing SIPs in bear phase is beneficial
During a bear phase, some clients stop their SIPs out of fear of losing money. When markets pick up, they invest again. Financial advisors must tell their clients that timing SIPs can be harmful for their portfolio. When SIPs are discontinued during the bear phase, client miss the chance to average out the buying price. Moreover, they will suffer an opportunity cost when the market unexpectedly begins racing.