Systematic Investment Plan (SIP) has become one of the easiest and most popular ways for millions to grow wealth through mutual funds. By investing a small amount every month, investors can achieve significant
financial goals over time. Despite its popularity, many myths and misunderstandings about SIP still exist.
These misconceptions can lead to poor decisions and affect long-term returns. Let’s debunk some of the main myths.
Myth 1: SIP Gives Immediate High Returns
Many new investors believe that starting an SIP will guarantee steady and high returns every year. Social media and influencers often portray SIP as a fast track to wealth. However, the reality is different.
- Time and discipline matter: SIP results depend on consistent investing over years, not months.
- Fund performance matters: If a fund’s strategy is weak, its track record is unstable, or it consistently underperforms, returns will be poor.
- SIP’s role: It spreads investment across market levels, reducing risk and smoothing out market fluctuations.
- Key factors: The right time period, fund selection, and category choice determine returns. Real growth typically happens over 7, 10, or 15 years, not instantly.
Myth 2: Start SIPs In Every Popular Fund
Some investors jump into trending funds or those topping rating charts, thinking more funds equal more profit. They may end up with 8-10 funds, many of which they don’t fully understand.
- Portfolio overload: Having too many funds makes management difficult and may cause stock overlaps rather than diversification.
- Smart approach: Choose 3-5 quality funds across categories like large cap, flexi cap, mid cap, or hybrid.
- Goal alignment: Funds should be selected based on your objectives, such as child’s education, home purchase, or retirement.
Myth 3: Never Stop An SIP
Many assume stopping an SIP midway is wrong and reduces returns. Life, however, is unpredictable; income changes, jobs shift, emergencies arise, and goals evolve.
- Flexibility matters: SIP is not a contract; it can be paused, stopped, or modified.
- Pause options: Many companies allow 3-6 month pauses with the ability to restart.
- Switching funds: If a fund underperforms or your strategy changes, shifting to a better fund is possible and often advisable.
Myth 4: Stop SIP When The Market Falls
Market dips often panic investors. A falling NAV might show temporary losses, but this is actually beneficial for SIP investors.
- Buying more units at lower prices: For example, with Rs 5,000, if NAV is 100, you get 50 units; if NAV falls to 80, you get 62.5 units.
- Lower average cost: This reduces your overall purchase price.
- Long-term gains: When markets recover, the extra units generate higher returns. SIP works best during market ups and downs, so stopping during a downturn means missing opportunities.
Myth 5: SIP Itself Guarantees Profit
Some think SIP is a product like a bank FD, and any SIP will yield profit. This is incorrect.
SIP is a facility, not a product: It is merely a method to invest a fixed amount in mutual funds regularly.
- Fund quality is crucial: The real returns depend on the fund’s portfolio, management, strategy, and past performance.
- Investor responsibility: Always check the fund’s history, manager experience, strategy, and risk profile before starting.
Key Takeaway
SIP is a powerful investment tool, but it is not magic. Its strength lies in disciplined investing and selecting the right mutual funds.
Avoid myths, understand your portfolio, and focus on long-term growth to make SIP work effectively for your financial goals.
