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.

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 monthly amount 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, enhancing SIPs’ versatSIPs’.

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

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

• Misconception #4: Investors must not start a 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 need to allocate their funds differently, they can choose to stop their SIP anytime. However, investors should remember that exit loads or penalties may be 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. SIP calculators help investors better understand their financial future and make informed investment decisions. They can also help investors plan for various financial milestones, from purchasing a home to planning for retirement. At the same time, it is important to understand that SIP calculators are merely an estimation tool, and markets need not use them.

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

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

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