Mutual funds and SIPs are two terms that are often used interchangeably. Both investment plans are quite popular and one often confuses one with the other. But, how do they differ? And how should you choose the right one for your needs? In this article, we’ll give you a quick overview of these two investment vehicles so that you can make an informed decision when it comes time to choose one or the other.
What is an SIP?
An SIP is a recurring mechanism to invest in mutual funds. It’s like a recurring deposit, except that it’s an investment into the mutual fund rather than your bank account. The difference between the two lies in their timings: you can choose either weekly or monthly payments, and they’ll be deducted from your account automatically every week (or month).
An SIP also allows you to get rid of any restrictions placed on regular investments, such as minimum deposits and maximum investment amounts, because, with this mode of investing, there aren’t any such constraints at all.
SIP also helps in rupee cost averaging as the investor can buy more units when the price is low and fewer units when the price is high. This helps to average out the cost of the units over time.
How does SIP work?
When an investor signs up for a SIP, they agree to invest a certain amount of money at regular intervals for a specified period of time. The mutual fund company then automatically deducts the agreed-upon amount from the investor’s bank account on the specified date and uses the money to purchase units of the mutual fund.
What are Mutual Funds
A mutual fund is a type of professionally managed pool of money which is funded by many investors to purchase securities. Mutual funds are operated by professional fund managers, who invest that money in stocks, bonds and other securities. Mutual funds can be purchased either directly or through an exchange-traded fund (ETF).
Mutual funds are typically long-term investments with terms ranging from three months to five years.
The upside of mutual funds is that they offer a plethora of investment options. The downside is that they tend to have high fees and are not as flexible as other investment vehicles, such as exchange-traded funds (ETFs).
Understanding the relation between SIPs & Mutual Funds
SIPs are a low-cost investment option. You can invest in them monthly, quarterly or even annually with no extra charges. Their flexibility makes SIPs an ideal choice for those who want to invest regularly and for the long term. SIPs can be a great option for investors who want to invest in mutual funds but may not have a large amount of money to invest upfront. SIPs allow investors to start investing in small amounts and gradually increase their investment over time. Additionally, SIPs are great for building discipline and encouraging regular savings habits.
Mutual Funds are more expensive than SIPs because they charge fees for managing your money on an ongoing basis. However, if you have a large amount of money and want expert advice about how much should be invested in which type of fund, then mutual funds may be worth considering as well.
Mutual Funds have always been an important asset class for investors. By investing in these funds via Systematic Investment Plans or SIPs, you can manage your investments in a hassle free manner without having to invest money manually every month.
Disclaimer: This article has been issued on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this document is for general purposes only and not a complete disclosure of every material fact. The Stocks mentioned herein is for explaining the concept and shall not be construed as an investment advice to any party. The information / data herein alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions, figures, estimates and data included in this article are as on date. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Readers shall be fully responsible/liable for any decision taken on the basis of this article. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
