Separating fact from fiction: Common misconceptions about SIP investments

The Association of Mutual Funds in India recently reported that Indian mutual funds now have more than 7.1 crore SIP accounts. During September 2023 alone, mutual funds in India collected ₹16,042 crore. This article debunks seven common misconceptions about mutual fund investments in India, helping new investors make informed decisions on their investment journey.

What are the Benefits of Systematic Investment Plan (SIP)?

Clarifying seven misconceptions about mutual fund investments in India:

  • Misconception #1: SIPs only benefit investors who wish to invest small amounts of money.

The truth is that SIPs allow investors to start investing in mutual funds with as little as ₹100 per month. Systematic Investment Plans are thus flexible and can be tailored to an investor’s specific investment goals.

  • Misconception #2: Investors can only contribute a fixed amount every month through an SIP.

SIPs allow investors to modify their monthly contributions. Investors can increase or decrease the amount they invest through an SIP at their convenience. This flexibility enables investors to adapt their investment strategy to changing financial circumstances, further enhancing SIPs’ versatility.

  • Misconception #3: Investors cannot change their SIP’s tenure.

Another common misconception is that once an investor starts an SIP, they are locked into a fixed tenure. In reality, SIPs are simply a tool for investing in mutual funds and an investor can choose to stop their contributions through SIPs whenever they want.

  • Misconception #4: Investors must not start an SIP investment during a Bull market.

SIPs are designed for long-term wealth creation, and they can be started at any time. Hence, timing the market becomes irrelevant. Short-term fluctuations are usually corrected in the long-term. They also help investors benefit from rupee cost averaging, reducing the impact of market volatility on their investments by investing consistently over time.

  • Misconception #5: One cannot discontinue an SIP investment.

If an investor finds that their financial goals have shifted, or that they need to allocate their funds differently, they can choose to stop their SIP at any time. However, investors should bear in mind that there may be exit loads or penalties associated with early discontinuation if they wish to withdraw their investments.

  • Misconception #6: SIP returns at maturity cannot be estimated.

Online tools like SIP plan calculators help investors estimate the potential returns on their investments based on their monthly contributions, tenure, and expected rate of return. Investors can gain a clearer understanding of their financial future and make informed investment decisions by using SIP calculators. SIP calculator can help investors plan for various financial milestones, from purchasing a home to planning for their retirement. At the same time, it is important to understand that SIP calculator are merely a estimation tool and markets need not

  • Misconception #7: A lower net asset value guarantees high returns

The Net Asset Value (NAV) of a mutual fund simply reflects the per-unit market value of the fund’s assets. The performance of a fund depends on various factors, including the quality of its portfolio, the fund manager’s expertise, and the prevailing market conditions. Instead of focusing solely on NAV, investors must consider the fund’s past performance and investment objectives when making investment decisions.

SIPs are versatile and flexible investment tools that cater to investors with various financial goals and risk appetites. Investors can make well-informed decisions and embark on a successful investment journey by debunking these misconceptions. Utilising online resources, such as SIP calculators, can further enhance investors’ understanding and management of investments.

John R. Wright
Social media ninja. Freelance web trailblazer. Extreme problem solver. Music fanatic. Spent several months marketing pubic lice in the financial sector. Spent 2002-2008 supervising the production of ice cream in Africa. Had some great experience developing robotic shrimp in the aftermarket. Spent several years getting my feet wet with puppets in Miami, FL. Was quite successful at supervising the production of corncob pipes worldwide. What gets me going now is working with electric trains in Mexico.