Maximise your mutual fund returns: 15 SIP myths debunked

Systematic Investment Plan (SIP) has emerged as a popular investment avenue in India, offering a disciplined approach to wealth creation. Despite its widespread adoption, SIPs often fall victim to myths and misconceptions that deter potential investors. 

In this article, we debunk 15 common myths surrounding SIP investments, shedding light on the realities and benefits of this investment strategy.

1. SIPs are only for the rich - SIPs are accessible to investors across all income brackets. With investment amounts starting as low as ₹500, SIPs offer an affordable entry point for individuals from diverse financial backgrounds to participate in wealth creation.

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2. SIPs guarantee high returns - SIPs do not assure high returns or protection against market volatility. However, they offer the advantage of rupee cost averaging, allowing investors to purchase more units when prices are low and fewer units when prices are high, potentially mitigating market fluctuations over time.

3. SIPs are only for long-term investors - While SIPs are well-suited for long-term wealth accumulation, they also cater to short-term financial goals. Investors can customise their SIP tenures according to their objectives, whether short, medium, or long term, providing flexibility in achieving financial targets.

4. SIPs are equivalent to mutual funds - SIP is a mode of investing in mutual funds rather than a separate investment product. Mutual funds offer various investment avenues such as equity, debt, and hybrid funds, allowing investors to diversify their portfolios based on risk appetite and financial goals through SIPs.

Also Read: How to become rich: Your ₹5000 monthly SIP can help you grow ₹5.22 crore. Mutual fund calculator explains

5. SIPs are only for investing in equity - While SIPs are commonly associated with equity mutual funds, investors can opt for SIPs in debt funds as well. Debt SIPs provide stability to portfolios by investing in fixed-income securities such as bonds and government securities, catering to investors with a lower risk tolerance.

6. SIPs require constant monitoring - SIPs are designed for passive investing, reducing the need for frequent monitoring. Investors can set up automatic debits from their bank accounts, enabling a hassle-free investment process. Moreover, the disciplined approach of SIPs encourages investors to stay committed to their financial goals without frequent intervention.

7. SIPs are not tax-efficient - SIPs offer tax benefits under various sections of the Income Tax Act, 1961. Equity-oriented SIPs held for more than one year qualify for long-term capital gains tax at 10% without indexation, up to ₹1 lakh. Additionally, SIPs in ELSS (Equity Linked Savings Scheme) qualify for tax deductions under Section 80C, providing dual benefits of tax savings and wealth accumulation.

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8. SIPs lock in funds for the entire tenure - SIPs do not impose any lock-in period, offering liquidity to investors. While maintaining a disciplined investment approach is encouraged, investors can opt to discontinue SIPs or redeem units partially or entirely as per their financial requirements, subject to exit loads, if any.

9. SIPs are not suitable during market downturns - Market downturns present opportunities for SIP investors to accumulate units at lower prices through cost averaging. By staying invested during volatile market phases, SIP investors can potentially benefit from market upswings in the long run, achieving superior returns despite short-term fluctuations.

10. SIPs guarantee wealth creation - SIPs are a disciplined investment strategy aimed at wealth accumulation over time. While they provide a systematic approach to investing, actual returns depend on various factors such as market performance, fund selection, and investment tenure. Consistent contributions and patience are key to realising the full potential of SIP investments.

Also Read: An SIP of ₹10,000 a month in this Franklin mutual fund would have made you a crorepati

11. SIPs lock in investors' funds - Unlike traditional investment avenues like Fixed Deposits (FDs), SIPs do not lock in investors' funds for a specific tenure. Investors can redeem their units partially or completely at any time, providing liquidity when needed.

12. SIPs guarantee protection against losses - While SIPs offer a disciplined approach to investing, they do not shield investors from market risks entirely. The value of SIP investments may fluctuate based on market conditions, and investors should be prepared for short-term volatility.

13. SIPs have high entry barriers - Initiating a SIP is a straightforward process that does not involve significant entry barriers. Investors can start with minimal documentation and invest small amounts regularly, gradually building their investment corpus over time.

14. SIPs are not as profitable as direct stock investments - While direct stock investments offer the potential for higher returns, they also entail higher risks and require extensive research and expertise. SIPs provide a more diversified approach to investing, reducing individual stock risks and offering a disciplined wealth-building strategy.

15. SIPs cannot be altered once initiated - SIPs offer flexibility, allowing investors to modify or pause their investments based on changing financial circumstances.

Investors can increase or decrease the SIP amount, switch between funds, or even stop the SIP altogether if needed.

In conclusion, SIP investments have gained popularity in India as a systematic and disciplined approach to wealth creation. However, they are often surrounded by myths and misconceptions that may deter potential investors. By debunking these myths and understanding the realities of SIP investments, individuals can make informed decisions aligned with their financial goals and risk appetite. With its affordability, flexibility, and potential for long-term wealth accumulation, SIP remains a valuable tool for investors seeking to build a secure financial future.

Rohit Gyanchandani is Managing Director at Nandi Nivesh Private Limited