3 SIP Myths You Must Avoid to Maximise Returns From Equity Funds

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SIP is a facility offered by mutual funds where you can invest a fixed amount regularly, in a mutual fund scheme of your choice. You may find many people believing SIP to be an investment product by itself. However, SIP is a facility offered by mutual funds and not an investment product. In simple terms, you invest through a SIP and not ‘in’ a SIP.

SIP is suitable only for small investors

You may believe that SIP helps you put small amounts of money regularly in a mutual fund scheme. It is a myth as you can invest in equity funds through SIP with any amount.

However, you will have to invest a minimum amount of Rs 500 per SIP instalment. You may consider putting higher amounts in equity funds through SIP if you want to achieve your long-term financial goals faster.

2. Opt for frequent SIPs

You may believe that frequently investing through daily, weekly or fortnightly SIPs may offer higher returns than monthly SIPs. You have studies showing the frequency of SIPs having no impact on the returns from equity funds.

In simple terms, the difference in return between weekly and monthly SIPs is negligible over some time. You may consider picking SIP dates for mutual funds at your convenience. You could select monthly SIPs if you get a fixed monthly salary and you could choose SIP dates close to your payday.

3. Stop your SIPs when the stock market crashes.

You put money in equity funds through the SIP to avoid timing the stock market. It is a common myth that you must stop SIPs when the stock market crashes.

However, you will lose an opportunity to average out your investment cost if you stop SIPs when stock markets crash. You can equate stopping SIPs in a bear market as timing the stock market. It defeats the purpose of putting money in equity funds through SIP.

You must focus on selecting the right equity fund and invest through the SIP to achieve your investment objectives.

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