Systematic Investment Plans (SIPs) are now a prevalent method for investing in mutual funds. However, several myths surround SIPs, often leading investors to misunderstand their benefits and limitations. This blog will debunk some of the most common SIP myths about mutual funds and help you make well-informed investment decisions.
10 SIP Myths About Mutual Funds
Myth 1: SIPs Only Work in Bullish Markets
Fact: SIPs work in bullish and bearish markets due to the principle of rupee cost averaging. When markets are down, SIPs buy more units at lower prices, and when markets rise, the previously accumulated units gain value.
Example: If you invest Rs. 5,000 monthly in an equity mutual fund and the market dips, your SIP will purchase more units. When the market recovers, those additional units will yield higher returns.
Myth 2: SIP Investments Cannot Be Modified Once Started
Fact: SIPs offer flexibility. Investors can increase, decrease, or pause their SIPs depending on their financial situation.
Example: You can increase your SIP if you receive a salary hike. Likewise, you can reduce or pause your SIP without penalties in a financial crunch.
Myth 3: Stopping a SIP Means Losing All Invested Money
Fact: Stopping a SIP does not mean your investment is lost. The invested amount remains in the fund and continues to earn returns based on market performance.
Example: If you stop your SIP after three years, the units accumulated will remain invested and can still grow in value.
Myth 4: SIP Is an Investment Product, Not a Strategy
Fact: SIP is a method of investing, not a financial product. It allows investors to invest systematically rather than as a lump sum.
Example: Investing Rs. 60,000 at once and Rs. 5,000 per month for 12 months are two different strategies, but SIP helps reduce market timing risks.
Myth 5: SIP Guarantees High Returns in the Long Run
Fact: SIPs help create wealth but do not guarantee high returns. The market’s performance significantly impacts investment returns.
Example: An investor in an SIP-linked equity mutual fund can earn 12% annualised returns over the long term, but there can also be periods of lower or negative returns.
Myth 6: You Cannot Lose Money with SIPs
Fact: SIPs help mitigate risks but do not eliminate them. Market fluctuations can cause temporary losses.
Example: If the markets crash after you start an SIP, your investment’s value may decline. However, staying invested and continuing SIPs can help you recover losses over time.
Myth 7: SIPs Need to Be Continued for a Fixed Period
Fact: SIPs do not have a mandatory lock-in period (except for ELSS funds). You can start and stop SIPs at any time.
For example, if you start a SIP in a regular equity mutual fund, you can withdraw or discontinue it anytime.
Myth 8: Investing a Lump Sum Is Always Better Than SIPs
Fact: Lump sum investments can be beneficial during market downturns, but SIPs help mitigate the risks associated with market timing and volatility.
Example: If you had Rs. 1,20,000 to invest, investing Rs. 10,000 per month through SIPs might yield better risk-adjusted returns than investing the entire amount in a single transaction during a market high.
Myth 9: SIP Investments Cannot Be Withdrawn Before Maturity
Fact: SIP investments are not bound by any maturity period (except for ELSS funds, which have a 3-year lock-in). Investors can typically redeem their mutual fund units at any time.
For example, if you have an SIP in a liquid fund, you can redeem your investment instantly in case of financial emergencies.
Myth 10: A Higher SIP Amount Always Leads to Better Returns
Fact: Returns depend on fund performance, investment duration, and market conditions, not just the investment amount.
Example: Consider how consistently investing a smaller amount, like Rs. 5,000 monthly, in a high-performing fund for 15 years can yield greater returns than investing double that amount, Rs. 10,000, in a low-performing fund for only five years.
Start Your SIP Investment Journey with VSJ FinMart
If you want to invest in SIPs but need guidance, VSJ FinMart is here to help! Our expert advice will assist you in selecting mutual funds that align with your financial objectives and risk preferences. Start your SIP today and take a step toward financial security!
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Final Words
Systematic Investment Plans (SIPs) are a disciplined and flexible way to invest in mutual funds. They help investors navigate market volatility while building long-term wealth. However, common myths often create confusion and prevent individuals from maximising SIPs. By understanding the realities behind these misconceptions, investors can make informed decisions aligned with their financial goals. Patience, consistency, and choosing the right funds are key to successful SIP investing. If in doubt, seek professional advice to optimise your investment strategy.
Explore our blogs to gain deeper insights into mutual fund investing:
- 10 General Myths About Mutual Funds
- 10 Performance-Related Myths About Mutual Funds
- 10 Risk-Related Myths About Mutual Funds
- 10 Taxation-Related Myths About Mutual Funds
- 10 Investment Myths About Mutual Funds
- 10 Fund Management Myths About Mutual Funds
- 10 Redemption & Withdrawal Myths About Mutual Funds
Stay informed and invest wisely! 🚀
📢 Disclaimer
Mutual fund investments are subject to market risks, so read all scheme-related documents carefully before investing. Past performance is not indicative of future results. The information provided in this blog is for educational and informational purposes only and should not be considered investment advice. Investors should consult their financial advisors before making any investment decisions. VSJ FinMart is an AMFI-registered mutual fund distributor (MFD) that does not provide portfolio management or stock advisory services.