Mutual Fund vs SIP
SIP or Systematic Investment Planning allows you to invest systematically, as in weekly, monthly or quarterly which is based on your preference. But where are you investing?
With the help of SIPs, you would be investing in mutual funds. Or you can say SIP is just a tool by which you can invest in mutual funds.
SIP is just a method of mutual fund investment, not a type or comparable investment instrument.
The other way to invest in a mutual fund is investing a lump sum amount or one-time investment.
Yet, SIP is a very smart and hassle-free way to invest in mutual funds. Because of a lack of information, many investors, especially new ones, think SIP is an investment by itself, while it actually is just a way to invest in mutual funds.
Have a look at in details
A mutual fund is a financial instrument, which will pool yours and other investor’s money in the stock market if you opt for an equity mutual fund.
If you opt for a debt mutual fund, and the money would be invested into the treasury bills, Money Market instruments, Government Securities, or Corporate Bonds.
If you choose a hybrid fund your money is invested in a mix of stocks and bonds.
To invest in mutual funds, there are two methods.
First, through Systematic Investing Plan (SIP) a second via a lump sum, that is putting together money at one go.
A lump sum would be a single large investment done by an investor in one go. A debt mutual fund is generally preferred for this kind of investment.
And, an SIP is an option of investing a fixed sum in a mutual fund scheme on the regular basis. It would be similar to regular saving schemes like a recurring deposit.
It’s a tested method of minimizing risk & yet enjoying good returns, by regular, periodic investment, over a long period of time.
Reasons why SIP Investment Is the Best Way to Invest
SIP is the ideal method to invest in the equity market as it involves staggering your investments over the whole financial year. It will help you to average the cost of purchase and beat volatility.
Also, it brings financial discipline to your life.
Hope you understand by now that a SIP is not a different type of investment. It is just another way of saying ‘monthly investment’.
There are several benefits of investing in Mutual Fund via SIPs i.e. a fixed amount every month:
· Easier to save and invest: It is easier to save small amounts of money regularly than a big amount in one go. And create wealth using a small investment.
· Stock markets are volatile: Some months they are high and some months they are low. So investing each month averages out the purchase price.
· Discipline: Saving and investing every month instills discipline in the investor to stick to a plan in spite of market ups and downs.
· Fewer decisions: You don’t have to decide every month how much to invest and which funds to invest in.
Because of these benefits sometimes the popular media talks of SIPs as if they are an investment class of their own. But they are just another name for monthly installments in mutual funds.
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Article first Appeared on Informalnewz