Another myth which stops investors from entering mutual funds is that they think starting SIP for X yrs, is a commitment they can’t break in between and they will face some penalty if they stop their investments.

A lot of people do not want to give any PROMISE of regular payment. However the truth is that once you start the SIP, you can anytime stop the SIP in between. So don’t worry while starting the SIP for next 5, 10 or 30 yrs. The day you want to stop it, it can be stopped with just one notification!

One of the biggest myths of investors is that if they are doing SIP in ELSS (tax saving mutual funds), then after 3 yrs, they can withdraw all their money. However that is not true. Each investment in ELSS is locked for 36 months from the date of investments. Which means that the first SIP which goes in March 2017, will be free of lock in only in Apr, 2020.

One of the most common myths is that SIP in mutual funds is highly risky because they invest in stocks. However this is half true. Only equity mutual funds invest in stocks and are risky (infact volatile is the right word, not risky).

There are other categories of mutual funds called as debt mutual funds, which do not invest in equities. They invest in bonds, govt securities and other secured investments. Debt funds are stable when it comes to returns and provide better tax adjusted returns then bank fixed deposits.

Just because you invest in more mutual funds does not always mean that you have achieved diversification. The reason is simple. A mutual fund invests in close to 50-100 stocks. So when you invest in an equity mutual fund, your money is already well diversified across sectors, types of companies etc.

When you add another mutual funds, most of the stocks might be same and also in same proportion, giving you very little extra diversification. This is one reason why it’s of no use to invest in 10-20 mutual funds of same category. 2-4 funds of a similar category are good enough. You should add more SIP amount or lump sum in the same fund once you have chosen 2-4 funds.

Many people who regularly save income tax through PPF or life insurance policies, do not know that even SIP in equity mutual funds have 80C benefits. ELSS or Equity linked saving scheme is the category of mutual funds which gives you 80C benefits up to Rs 1.5 lacs.

No, An SIP can be done even on a weekly or quarterly basis. While monthly SIP is the most suitable for all (we all get monthly income), but at times if you want to invest on quarterly basis or weekly basis, even that can be done.

However note that it depends on a mutual fund if it gives you the facility of weekly/quarterly SIP or not. Most of them do, but at times, some mutual funds might choose to not have that option.

A lot of investors feel that if they have started an SIP in a fund XYZ, then they can’t add additional money in the same fund under the same folio. It is not true.

When you invest in a fund (either SIP or one time), you get a folio number. This is like an account number. You can anytime add or withdraw any amount of fund to the same folio. So if you are doing a SIP of Rs 10,000 in XYZ fund, and now if you want to add another Rs 1,00,000 suddenly, you can do that.

A lot of people are worried about what will happen if they skip the SIP in a particular month when they are low on funds?

If your bank account does not have sufficient money for a month, then on the SIP date the SIP will not get processed, but from next month it will go fine again. Mutual funds company does not charge any fine or penalty for this, but your bank can levy a small charge for this like Rs 200/300.

I think it’s good, because that way you will be disciplined enough to make sure that your SIP’s go on time, but also does not hurt you too badly in case of emergency.

Unless you are expert in understanding markets and how they will behave (which I think no one knows), it does not make a lot of sense to time your SIP’s . Just let them run in all kind of markets and focus on your long term goals.

Most of the investors make this mistake that they stop their SIP’s when markets tank. Infact, this is the best time when you should accumulate more Mutual funds units in your portfolio, so that when markets are up, you will reap the benefits.

Many investors think that in SIP their money is locked for a specific period. In case of mutual funds, most of the funds are open ended funds, which means that you can invest anytime and redeem anytime.

There is no lock in except in ELSS funds (which comes under 80C) however a small exit load is charged in case of early withdrawals usually 1yr in Equity Mutual Fund.

Many investors are always trying to time the market. They do not understand that it is time in the market and not timing the market that is important. The most common question investors ask is - Is it the right time to start SIP? Obviously the correct answer is - Any time is a good time to starting SIP. One should always remember that SIPs shield the investor from market fluctuations with its systematic approach.

None of them are better than the other.

SIP’s will outperform the onetime investments in certain conditions and vice versa. SIP’s however are more suitable for a common man as it’s a monthly commitment and averages the risk of market’s volatility.

Yes you can. SIP can be redeemed in parts. You just have to choose the number of units you want to redeem or the amount you want to redeem (it will calculate the units required). So that way, it’s a great product. Because in case of deposits it’s either the full amount or none (which is one positive thing also).

Even companies and HUF’s can invest via SIP. It’s not limited to just individual. So if you are business owner, you can also go for your business KYC, and then start invest in mutual funds.