3 Common Myths About SIP and the Truth Behind Them
Summary
SIPs are a disciplined way of investing in mutual funds, yet often misunderstood. They are not for quick gains, nor are they risky by nature. With patience, consistency, and the benefit of compounding and rupee-cost averaging, SIPs reward long-term investors. Myths fade, but disciplined investing brings lasting results.
Introduction
Systematic Investment Plan (SIP) in mutual funds is one of the most popular ways to invest nowadays. Some are investing to fulfil their financial needs, like preparation for retirement, some for their child’s education or building long-term wealth.
Well, as more people become aware of mutual funds, myths and misconceptions about them are also on the rise. But, before talking about myths, let’s understand what SIP is in mutual funds.
What is SIP?
SIP stands for Systematic Investment Plan. SIP is not an investment product itself, it is a disciplined approach of investing with a fixed amount regularly into mutual fund schemes. SIPs are well-known and widespread among mutual fund investors due to their simplicity and effectiveness. Yet, despite being so widely adopted, SIPs are often surrounded by myths and misconceptions. These misunderstandings usually arise from incomplete knowledge or misleading information shared through informal channels.
In this blog, we will break the myths about SIP and uncover the facts behind it.
Myth 1: No one makes money through SIP
This is one of the most common misconceptions about SIP that they do not generate any wealth. The reason behind the thought is indiscipline, inconsistency and impatient behaviour, and as a result of this behavioural gap, they stop their SIPs and claim that SIP did not generate any money.
But in reality, the truth looks far different. SIP is designed in such a way that it works best over time. It follows the principle of compounding, where returns will earn returns on returns. The real magic of compounding unfolds only with time, the longer you stay invested, the greater the growth.
In 2023, a record 34.8 million SIP accounts were registered. However, by the end of 2024, only 18.2 million remained active, indicating a 48% closure rate within just 2 years of registration. Comparatively, the 2022 SIP closure rate stood at 42%, highlighting a rising trend of investor churn. Source: AMFI
SIP Rewards those who are patient. If anyone wants benefits from SIP, they need to have a long-term vision and a disciplined approach to stay invested without any fear of market fluctuations.
Myth 2: “SIP is for quick money”
Some investors believe that SIPs can generate large profits quickly, especially during market upswings. This misconception often arises from confusing SIPs with speculative trading or market timing. In reality, SIPs are structured for long-term wealth building. The power of compounding and rupee-cost averaging works over years, not months. Expecting high short-term gains can lead to frustration and premature withdrawal. SIPs reward patience, not impatience.
Myth 3: “SIP is risky”
Many people think that SIPs are risky, but this myth arises because of a lack of financial literacy, which is why it is important. In reality, SIP is just a method of investing in mutual funds—it doesn’t carry risk on its own. The level of risk actually depends on the type of mutual fund you decide to invest in. For example, equity fund carries a higher risk and return potential, debt funds offer stability and lower risk, and hybrid funds are a combination of equity and debt, which makes them a fair balance between risk and stability.
Conclusion
SIPs become truly powerful when we set myths aside and focus on the facts. Instead of worrying about short-term ups and downs, it’s the consistency of long-term investing that drives meaningful outcomes. By staying disciplined and committed, you give your money the chance to grow steadily over time. And if you’re looking for more clarity or guidance on how SIPs can work best for you, don’t hesitate to connect with your mutual fund distributor.
FAQs
1. Does market volatility affect SIP?
Yes, but rupee-cost averaging helps reduce its impact over time.
2) Is SIP completely risk-free?
No, SIP itself is just a method of investing, so it isn’t risky on its own. The risk level depends on the mutual fund scheme you choose (equity, debt, or hybrid).
3) Do SIPs guarantee returns?
No, returns depend on the mutual fund’s performance and market conditions.
Mutual Fund investments are subject to market risks, read all the scheme related documents carefully.