Systematic Investment Plan (SIP) is probably the easiest and most popular option for millions of people looking to build wealth over the long term. However, many myths about SIPs still persist among investors. These myths not only lead to wrong decisions but also impact long-term returns.
Let's discuss some major myths about SIPs and their truths.
cancel Myth 1: SIPs Always Deliver Excellent Returns
Many investors, especially newcomers, assume that once they start a SIP, they'll get good returns right from the beginning. This belief has grown stronger because of social media posts and finfluencers making misleading claims.
check_circle Truth:
SIPs require time and discipline. Their performance depends on many external factors. If the fund's strategy is weak or it consistently underperforms, even SIPs won't yield satisfactory returns.
Three factors influence SIP results:
- ✓ The right tenure: Longer tenures—7, 10, or 15 years—create real value
- ✓ The right timing: Starting at the right time in the right fund is beneficial
- ✓ The right category: Choose funds based on your risk profile
cancel Myth 2: You Should Start SIP in Every Popular Fund
A common tendency is to immediately start a SIP in trending funds on social media or highly-rated funds. Many portfolios end up with 8-10 funds, half of which the investor doesn't understand.
check_circle Truth:
SIPs yield real benefits when your portfolio is tailored to your needs, risk tolerance, and financial goals. Starting SIP in every popular fund neither increases returns nor reduces risk.
Example:
If you invest in 3-4 mid-cap funds, you're overlapping similar stocks. This leads to duplication, not diversification. A balanced combination of 3-5 funds (large-cap, flexi-cap, mid-cap, or hybrid) is often most effective.
cancel Myth 3: Once You Start SIP, You Should Never Stop It
Many believe that continuing SIP without interruption is the right strategy, and stopping midway will reduce returns or be a mistake.
check_circle Truth:
You can pause, change, or stop a SIP at any time based on your needs and circumstances. SIP isn't a contract—it's a flexible investment strategy where you have complete control.
SIP Pause Facility:
Many mutual fund companies offer SIP pause facility. This allows you to pause your SIP for a few months and easily resume when your circumstances improve.
cancel Myth 4: Stop SIP When Market Falls or Performance is Poor
Many investors think that if their SIP isn't delivering strong returns or the market drops, stopping the SIP is the safest option.
check_circle Truth:
A market downturn is actually a win-win situation for SIP investors. This is when you get more units at lower prices. This is called rupee cost averaging.
Example:
- • Investing ₹5,000/month when NAV is ₹100 = 50 units
- • Same ₹5,000 when NAV drops to ₹80 = 62.5 units
- • These additional units strengthen your returns when the market recovers
The right approach: Let your SIP run for the long term and view market declines as "buying opportunities," not "time to panic."
cancel Myth 5: SIP is a Product
Many investors believe SIP is an investment product itself, like a bank FD. This leads people to start SIPs without researching the underlying fund.
check_circle Truth:
SIP is not a product—it's simply an investment route. Your money goes towards purchasing units of the mutual fund you've chosen, not towards "SIP" itself.
Before starting a SIP, you must verify that the fund has:
- ✓ History of stable returns
- ✓ Experienced fund manager
- ✓ Clear and disciplined investment strategy
- ✓ Risk profile appropriate for your needs
The Bottom Line
Today, SIPs have become a strong and disciplined investment method for Indian investors. But you can only reap the benefits of SIPs if you stay clear of myths and plan your investment strategy wisely.
Three key factors for SIP success:
Choosing the Right Fund
Long Time Horizon
Being Consistent
Need Help Choosing the Right SIP?
At Gainvest, we help you cut through the noise and myths to build a SIP portfolio tailored to your goals and risk appetite.
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