A SIP or systematic investment plan is a disciplined way of investing in mutual funds with fixed contributions at periodic intervals. SIPs help you fulfil the goal of wealth-creation over a long-term horizon by leveraging the power of compounding and rupee-cost averaging. In fact, SIPs are one of the most effective ways for investors to invest in the market, while enjoying the benefit of built-in diversification and risk hedging. The growing popularity of SIPs among Indian investors has given rise to several myths about SIPs as well. In this article, we bust the most common myths about SIPs to help you become more financially aware and make informed investment decisions.

Here’s a list of 5 common SIP myths that mislead investors:

Myth 1: SIP is an investment product

Many investors are ill-informed about the nature and meaning of SIPs. They erroneously assume that SIPs are standalone investment products. However, this is incorrect. SIPs are simply a disciplined and convenient method of investing in mutual funds at regular intervals. In simple words, as an investor, you can invest your money into different mutual fund schemes through SIPs. You can choose schemes based on your financial objectives and risk appetite. Once selected, you start an SIP for the MF scheme whereby a fixed sum of money gets debited from your savings account at regular intervals (weekly, monthly, or quarterly).

Myth 2: SIP is only for small investors

Another common SIP myth is that SIPs are only suitable for small investors seeking to invest modest amounts. While the minimum investment amount for most SIPs is set at Rs. 500 per month, it does not mean this investment mode is exclusive to small investors. In fact, there is no upper limit on how much you can invest through monthly SIPs. Busting this SIP myth is essential because in reality, several HNIs use SIPs to consistently invest in the market. SIPs offer flexibility to the investor, where you can decide how much and how often you wish to contribute to the investment depending on your income and existing expenses.

Myth 3: You can only do SIPs in equity funds

Many investors assume that SIPs can only be done for equity funds. This is one of the most commonplace myths about SIPs that needs to be busted. In reality, SIPs can be leveraged for all types of mutual funds - be it equity, debt, hybrid, fund of funds, thematic funds, or index funds. Busting this SIP myth allows investors to utilise the SIP route for curating a diversified portfolio with different mutual fund scheme investments instead of concentrating their corpus in solely equity funds.

Myth 4: You cannot modify SIPs once started

There is a common misconception about SIPs that you cannot modify them once initiated. This is inaccurate. SIPs are one of the most flexible ways of investing in the capital markets. Once you start your SIP, you can still alter the amount, frequency, and period of your investment. You can flexibly alter these investment parameters to suit your needs. For instance, you can increase your SIP amount if your income increases due to a promotion or better job offer. Busting this myth about SIP is crucial to ensure you always tailor the investment according to your financial needs and requirements.

Also read: What Is Compound Annual Growth Rate (CAGR)

Myth 5: SIPs offer guaranteed returns

This is arguably one of the most common SIP myths that needs to be dispelled. SIPs help you invest in mutual funds through regular contributions. While investing through mutual fund SIPs is safer than investing directly in the equity markets, they are still subject to market risks. In other words, returns from your investment are not guaranteed since mutual funds are market-linked investment products. Returns depend on the fund’s performance and prevailing market conditions. However, the rupee-cost averaging principle of SIPs helps average out short-term volatility over the long-run, ensuring good returns. However, as an investor, you must understand this SIP myth to evaluate all the risks associated with MF investments.

• SIPs are not investment products, but a mode of investing in mutual funds.
• As market-linked instruments, mutual fund SIPs do not offer guaranteed returns.
• SIPs can be leveraged by both small and big investors to invest in equity, debt, and hybrid funds.

Apart from the common SIP myths listed above, you should also avoid myths like SIPs work best when timed right, you cannot withdraw from SIPs, and others. If you are mindful of the various SIP myths, you can avoid the pitfalls of investing without thorough knowledge. By reviewing the myths about SIPs busted above, you can attain a clearer understanding of this investment approach before leveraging it to build long-term wealth over time.

Now that we’ve busted all the SIP myths, you can start your investment journey on the Bajaj Finserv Mutual Fund Platform without any reservations. On this smart platform, you can compare 1000+ mutual funds to pick ones that best align with your investment objective and risk tolerance. You can then start SIPs with as little as Rs. 100! Moreover, you can estimate your returns using the Mutual Fund Calculator tool.