SIP Vs MUTUAL FUNDS

Know the difference between SIP and Mutual Funds:

Before knowing the difference between the SIP and mutual fund. We learn

What is SIP?

A Systematic Investment Plan (SIP), also known as SIP, is a facility provided by mutual funds to investors to invest in a disciplined manner. SIP allows an investor to invest a set amount of money in a mutual fund scheme at pre-determined intervals. The fixed amount of money can be as low as Rs. 500, and the pre-defined SIP intervals can be weekly/monthly/quarterly/semi-annually, or annually. By investing via SIP, the investor invests in a time-bound manner without worrying about market dynamics and stands to benefit in the long run due to average costing and the power of compounding.

What is Mutual Fund?

A mutual fund is a collection of money from investors with the goal of investing to achieve a common goal. To earn returns while achieving the stated goal, investments can be made in a variety of assets such as equity, bonds, and money market instruments.

·        It is professionally managed by an asset management company (AMC), with each investor participating in proportion to the number of units held.

·         A mutual fund is a type of investment vehicle that invests in a portfolio of stocks, bonds, and other securities or a combination of these assets.

Difference between SIP and MUTUAL FUNDS:

1.      Investment Strategy: SIP is a type of investment in which you make regular payments to purchase mutual fund units. This establishes the habit of investing on a regular basis.

2.  The Compounding Power of SIP Investments: SIP allows an investor to invest regularly and in a disciplined manner, accumulating wealth over time. SIPs are a better way to achieve financial and investment goals. Mutual funds allow investors to reinvest their earnings or returns. Instead of withdrawing, an investor can reap the benefits of compounding if he reinvests in the same plan.

3.      Flexibility: You have more flexibility with SIP investments because you can invest small amounts on a regular basis, either weekly, fortnightly, or monthly, as you see fit. As a result, SIPs are ideal for salaried individuals or those with consistent cash flows. SIPs allow you to invest in mutual funds without disrupting your current lifestyle or spending habits. When you have a large sum of money to invest in a mutual fund scheme, you can do so.

4.      Reduced Cost: You can benefit from cost averaging if you invest in SIPs. This means that you can reduce your overall purchase cost by purchasing more units when the market is down and fewer units when the market is up. This assists you in lowering your average cost of purchasing. In contrast, if you invest in a lump sum, you will end up purchasing all the units at a higher price because you will not benefit from averaging.

5.      Volatility: Investors, particularly newcomers, are frequently perplexed about the best time to enter the market. When investing in a lump sum, there is always the issue of timing the purchase and thus being exposed to high volatility periods. With a SIP, the purchase is spread out over time, and only a portion of your total investment will be subject to higher-than-usual market volatility.

 

 

Parameters	SIP	Lump-sum Mutual Funds
Investment way	Regular	One time
Flexibility	High	Low
Cost	Less due to rupee cost averaging	High as the investment is done in a single transaction
Volatility	Less impact	More impact