In equilibrium, all assets will lie on the SML because they will have an appropriate return-beta relationship. However, if we depart from equilibrium some assets will not be correctly priced. If an asset is overpriced it will lie below the SML since it will provide an expected return less than what is determined by the SML given its risk (beta). If an asset is underpriced it will lie above the SML since its return will be greater than what the SML determines.
The CAPM gives investors a tool for determining their investment decisions. By estimating a SML and plotting an asset, the investor can determine whether the asset is over or underpriced and make investment decisions based on that knowledge.