Systematic Investment Plan (SIP) in mutual funds has become the most popular and preferred method of investment in the world today. Lakhs of people are dreaming of creating a huge corpus in the long run by investing small amounts every month. But along with the popularity of SIP, there are many myths associated with it, which can lead investors towards wrong expectations and wrong decisions. If these misconceptions are not understood in time, your entire financial planning can be affected.
1. Will SIP always give you high returns immediately?
Many people assume that once they start SIP, they are sure to get excellent and stable returns every year. Whereas the reality is that SIP is not a guaranteed scheme. Its benefit lies in long time and discipline. Market fluctuations, fund selection and investment tenure all affect returns. Real growth usually appears after 7-10 years or more.
2. The more funds, the more benefits?
Some investors think that it is wise to start SIP in 8-10 funds. But this can distort the portfolio and having similar shares in multiple funds increases the overlap. It is better to choose 3-5 good and diversified fund categories which are aligned with your financial goals.
3. SIP should never be stopped?
This is also a common misconception. Circumstances keep changing in life. SIP can be stopped or changed in case of income fluctuations, emergencies or change in goals. Many AMCs also provide the facility to pause SIP. It may also be wise to switch funds if needed.
4. Stop SIP as soon as the market falls?
It is natural to get nervous after seeing a decline in the market, but this time can become an opportunity for SIP. More units are available at lower NAV, which reduces the average cost. When the market improves, these extra units give better returns.
5. Does SIP itself provide profit?
SIP is not an investment product but a method of investment. The actual return depends on which mutual fund the money is invested in. Investing without understanding the fund’s performance, strategy and risk appetite can be risky.
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