Difference Between SIP vs Mutual Funds Explained

If you are planning to invest your money, then it is crucial to choose the right investment tool that aligns with your financial goal to get the highest returns out of it. Two of the most effective investment tools for enhancing the overall return from your investment portfolio are SIPs and mutual funds.

While SIP comes with disciplined investments periodically, mutual funds offer diversified portfolios that professionals manage. This guide will explore the difference between SIP and mutual funds. It will help you arrive at a better investment decision.

A mutual fund is a managed investment portfolio that pools investors' money. It is managed by mutual fund managers, who invest the money in diversified portfolios such as stocks, bonds, and short-term debt.

Investors do not own any underlying assets but hold their assigned units according to their investments. However, they are regulated by the SEBI and must be accountable for publishing information about the fees charged, securities held, etc.

Types of Mutual Funds

A Systematic Investment Plan (SIP) is a systematic and confusion-free investment in mutual funds. It periodically invests a fixed amount at set intervals, monthly or quarterly. As more units are bought at lower prices and fewer units are bought, it offers the benefit of rupee cost averaging.

Investors can start with a small amount and increase gradually over time. This helps mitigate the influence of market volatility, making it an ideal option for long-term wealth creation.

Types of Systematic Investment Plans (SIP)

How are Mutual Funds Taxed?

How are SIPs Taxed?

While choosing between SIP and mutual funds, you must consider your income stability, risk quotient, and financial goals.

• SIPs are generally meant for periodic investments in small amounts. This is particularly apt for a person who needs a regular income. It allows regular savings and works on the rupee cost averaging principle, reducing risks through market fluctuations. This method is appropriate for long periods like retirement.
• Mutual funds are more suitable for you if you have a surplus amount to invest. If the market is bullish, you can use the opportunity to capitalise on your investment. This method helps in your investment if you plan for short-term goals or when market conditions seem favourable.

You can even invest in both investment modes together to reap the benefits of both by addressing the gaps.

Both SIP and mutual funds come with their benefits and shortcomings. In the case of mutual funds, it allows you to be exposed to stocks, bonds, or other financial instruments. However, a mutual fund is an investment concept, while an SIP is a tool to invest in mutual funds.

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