23 Sep 2025
Systematic Investment Plans (SIPs) have emerged as one of the most popular ways for Indian investors to enter the world of mutual funds. Their simplicity, flexibility, and potential for long term wealth creation have made them a go to choice across income groups. Yet, despite their growing popularity, SIPs are surrounded by several misconceptions ranging from guaranteed returns to the belief that SIPs are only for beginners. These myths not only create confusion but can also lead to poor investment decisions. In this article, we debunk some of the most common SIP myths and help you make better, goal aligned choices with your investments.
Key Takeaways
- SIP is a method, not a product: It allows regular investing in mutual funds, but the investment returns depend on the chosen scheme.
- Suitable for all investors: SIPs work for both small and large investors due to their scalability and flexibility.
- No guarantees: SIPs do not assure returns. They reduce timing risk but do not eliminate market risk.
- Stay invested during downturns: Continuing SIPs in volatile markets helps with rupee cost averaging and long term growth.
- Not limited to equities: SIPs can be done in equity, debt, hybrid, gold, or even international funds.
- Easy to manage: SIPs can be paused, modified, or increased with ease, including via Step Up SIPs.
- More SIPs is not more diversification: Review underlying fund portfolios to avoid duplication.
- Short term SIPs have purpose: Goal based investing determines the right duration not a fixed timeline.
- No long lock in (except ELSS): Most SIPs in open ended funds are redeemable anytime, subject to exit loads.
- One time KYC: Once KYC is verified, you can invest across AMCs without repeating the process
Why Do SIP Myths Persist?
Before we dive into common misconceptions, it is important to clarify a few fundamentals. Systematic Investment Plans (SIPs) have transformed the way Indian investors participate in mutual funds. But the first step is understanding the true SIP meaning it is not an investment product in itself, but a disciplined method of investing a fixed amount regularly into mutual fund schemes.
Systematic Investment Plans (SIPs) have gained widespread popularity among mutual fund investors due to their simplicity and effectiveness. Yet, many myths and misconceptions continue to persist, often resulting from incomplete information, hearsay, or misleading content shared on social media and informal channels.
In some cases, investors may also generalize personal experiences without understanding how mutual fund schemes differ in risk, duration, and strategy. Additionally, a lack of basic financial awareness can lead to misjudging how SIPs actually work, especially in different market conditions.
These myths can cause confusion, discourage new investors, or lead to suboptimal investment decisions. Understanding and addressing these misconceptions is crucial for making informed and goal oriented choices.
Myth 1: SIP Is an Investment Product
One of the most common misunderstandings among investors is the belief that a SIP is an investment product in itself. In reality, a Systematic Investment Plan (SIP) is merely a method a disciplined way of investing a fixed amount at regular intervals into mutual fund schemes.
In the context of SIP vs Mutual Fund, it is essential to understand that SIP is just the mode of investing, while the mutual fund is the actual financial instrument. Whether you invest in equity, debt, hybrid, or other fund categories, the SIP mechanism helps build consistency and encourages long term investing. However, it does not influence the performance, risk, or objectives of the underlying mutual fund scheme.
Put simply, you’re not buying a SIP you’re investing in a mutual fund through the SIP route. Your returns and outcomes depend entirely on the mutual fund you choose, not on the SIP structure itself.
Myth 2: SIP Is Only for Small Investors
A common misconception is that Systematic Investment Plans (SIPs) are meant only for investors with limited capital, but this is far from the truth.
SIPs are suitable for investors across income levels whether you’re investing ₹100 or ₹10,000 per month. What matters is not the size of your SIP, but the consistency with which you invest. SIPs help inculcate disciplined investing and allow investors to benefit from rupee cost averaging, which can smoothen the impact of market volatility over time.
High net worth individuals (HNIs) and seasoned investors also use SIPs to spread their investments systematically instead of deploying large sums in one go. SIP is a flexible tool, and its usefulness extends well beyond just small ticket investing.
Myth 3: SIP Guarantees Returns
One of the biggest misconceptions among investors is that SIPs assure fixed or guaranteed returns. This is not true.
A SIP is simply a mode of investing in mutual fund schemes at regular intervals it does not change the risk or return characteristics of the underlying fund. Returns from SIPs depend entirely on the performance of the mutual fund scheme and prevailing market conditions. If the fund performs well, SIP returns may be attractive, returns may be higher or lower depending on market conditions; past performance is not indicative of future results.
While SIPs help average out the cost of investment over time and reduce the impact of market volatility, they do not eliminate risk. Mutual fund investments are subject to market risks, and past performance is not a guarantee of future results.
Myth 4: You Should Pause SIPs in a Bear Market
Many investors feel anxious during market downturns and consider pausing or stopping their SIPs. However, this approach may work against long term wealth creation.
Continuing SIPs in a falling market allows you to accumulate more mutual fund units at lower Net Asset Values (NAVs). This process, known as rupee cost averaging, can improve the average purchase cost and potentially enhance long term returns when markets recover.
Pausing SIPs during market corrections is like exiting a disciplined plan just when it starts working in your favour. SIPs are most effective when continued across market cycles, including bearish phases.
Myth 5: SIP Works Only for Equity Funds
It is often assumed that SIPs are meant only for equity mutual funds, but that’s not the case.
SIP is simply a method of investing regularly in any type of mutual fund, not just equities. Investors can set up SIPs in debt funds, hybrid funds, gold funds, or even international fund of funds, depending on their investment objective and risk appetite.
Whether you seek capital preservation, income generation, or wealth creation, SIP offers a structured approach across asset classes. The key is to choose the right fund category based on your goals, not to restrict SIPs to equity schemes alone.
Myth 6: You Can’t Change or Stop a SIP
A common belief is that once started, a SIP cannot be altered or discontinued. In reality, SIPs are highly flexible and investor friendly.
You can pause, modify, or cancel a SIP at any time through the mutual fund house or your investment platform, subject to a simple request process. There is no penalty or exit restriction for stopping a SIP midway except in the case of ELSS (Equity Linked Savings Scheme), which comes with a statutory lock in period of three years.
You can also increase your SIP amount or set up a Step Up SIP to align with your growing income or financial goals. The flexibility allows you to stay in control of your investment journey.
Myth 7: More SIPs Mean Automatic Diversification
Many investors assume that starting multiple SIPs in different mutual fund schemes automatically ensures diversification. However, this is not always true.
If the SIPs are directed toward funds that invest in similar stocks, sectors, or indices, it can lead to mutual fund overlap. This means you may be holding the same underlying assets across schemes, which reduces the benefits of diversification and increases concentration risk.
To ensure true diversification, it’s important to check each fund’s portfolio and invest across different asset classes, sectors, and market capitalisations.
Myth 8: Short Term SIPs Are Pointless
It’s often believed that SIPs are only effective when continued for many years. While long term SIPs help in wealth creation through compounding, short term SIPs can also serve meaningful financial goals.
For instance, you can use short term SIPs to accumulate funds for an upcoming expense like education fees, a vacation, or a gadget purchase or to invest in low duration debt funds for enhanced liquidity and better returns than traditional savings options.
The key is goal based investing. SIP duration should be aligned with the time horizon of your financial objective be it short, medium, or long term.
Myth 9: SIP Eliminates All Investment Risk
Some investors believe that investing through a SIP removes all risk. This is incorrect.
While SIPs help reduce timing risk by spreading investments over time they do not eliminate market risk. The performance of your SIP depends entirely on the underlying mutual fund scheme, whether it's equity, debt, hybrid, or any other asset class.
Each mutual fund comes with a specific risk profile, and SIP does not change that. For example, an equity fund will still be subject to stock market volatility, even if you invest via SIP.
Investors should assess the scheme’s suitability using parameters like the Sharpe Ratio, which measures risk adjusted returns, and ensure the investment aligns with their goals and risk appetite.
Myth 10: Lump Sum Beats SIP in Bull Markets
It is sometimes argued that lump sum investments outperform SIPs during bull markets. While this may be true in hindsight, timing the market consistently is extremely difficult, even for seasoned investors. In the SIP vs lumpsum Investment debate, one must understand that Lump sum investing requires the investor to correctly identify the market bottom or entry point, which carries its own risks. On the other hand, SIPs help you invest regularly across different market phases, enabling you to benefit from rupee cost averaging and avoid emotional, impulsive decisions.
SIPs may not always deliver the highest return during a sharp market rally, but they support disciplined wealth creation across market cycles, including both rallies and corrections.
Myth 11: SIPs Have Longer Lock in Periods
A common misconception is that all SIP investments come with a long lock in period. In reality, most SIPs in open ended mutual fund schemes can be redeemed at any time, subject to applicable exit loads, if any.
The exception is ELSS (Equity Linked Saving Scheme), which is a tax saving mutual fund under Section 80C of the Income Tax Act (Under Old regime). ELSS comes with a mandatory 3 year lock in period, and each SIP installment is treated as a separate investment with its own lock in.
For all other mutual fund categories such as equity, debt, or hybrid there is typically no lock in period, unless otherwise stated by the scheme.
Myth 12: KYC Is Needed Multiple Times for Mutual Fund Investments
Many investors believe that they need to complete the Know Your Customer (KYC) process every time they start a new SIP or invest with a different mutual fund house. This is not true.
KYC is generally a one-time process. Once your KYC is verified and registered with a KYC Registration Agency (KRA), you can invest across multiple Asset Management Companies (AMCs) without repeating the procedure.
However, if there are changes to your personal details such as name, address, or contact information you are required to update your KYC records accordingly. The process is regulated to ensure compliance and maintain updated investor information.
Myth 13: The SIP Tenure and Amount Cannot Be Modified
Many investors assume that once a SIP is set up, its amount, frequency, or duration cannot be changed. In reality, SIPs are designed to be flexible and adaptable to your changing financial situation.
Most Asset Management Companies (AMCs) and investment platforms allow you to modify your SIP amount or alter the tenure with a simple request. You can also choose a Step Up SIP, where the investment amount automatically increases at regular intervals helping you align contributions with rising income or inflation.
This flexibility enables better goal planning and ensures that your investments grow with your financial capacity.
Conclusion
SIPs have simplified mutual fund investing for millions of Indians, yet persistent myths often lead to hesitation or poor financial decisions. It's essential to recognise that SIPs are not a product but a method, and their effectiveness depends on how thoughtfully they are aligned with your goals, fund selection, and time horizon.
Whether you’re investing ₹100 or ₹50,000, whether for 3 years or 30, SIPs offer flexibility and convenience but they do not guarantee returns or eliminate risk. Understanding the facts behind each myth will help you use SIPs more effectively to build long term wealth.
Before starting or stopping a SIP, always consider your financial goals, risk profile, and asset allocation and if needed, consult a registered mutual fund distributor or financial advisor.
FAQs
1. Is SIP a separate investment product?
No. SIP is a mode of investing in mutual funds, not a product in itself.
2. Can I withdraw SIP anytime?
Yes, unless you’re invested in a fund with a lock in period (like ELSS). Just check for applicable exit loads.
3. Should I halt SIPs when markets fall?
No. Falling markets offer more units at lower NAVs, helping you average costs better.
4. Do multiple SIPs guarantee diversification?
No. You need to check fund portfolios to avoid overlapping holdings.
Disclaimers
Investors may consult their Financial Advisors and/or Tax advisors before making any investment decision. This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Asset Management Company or its employees. The company makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Company, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action. These materials are not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.
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