Wanted to start your investment journey but confused between SIP and Mutual Fund, are the same, what is difference between them?
Most important which is the most profitable from both SIP or Mutual Fund investing?
In this article we are going to understand about SIP vs Mutual Fund, difference, benefit, are they same or not, and much more. So without wasting the time.
Let’s understand quickly!
Table of Contents
SIP (Systematic Investment Plan)
SIP or Systematic Investment Plan is way of investing some amount every month in a specific mutual fund at regular intervals.
To make the process to invest in SIP hassle free you can enable the ECS feature or auto debit feature so that automatically every month the specific amount you choose will get debited from your account and got invested in the mutual fund.
Mutual Fund
Mutual Fund is a financial option or product where a company collects the money from small investors like you, hire a fund manager who have years of experience of financial markets and invest the money they collected from you in different financial options like stock market, bonds, treasury bills, etc.
For giving this service they also charge a small fee called expense ratio that can vary from one mutual to another but usually between 0.1% to 2%.
Difference Between SIP and Mutual Fund
Most people who are just starting out their investing journey got confused what is the difference between SIP and mutual fund?
Now let’s see how they are different:-
Investment Mechanism
SIP – SIP is just a way to invest the money in any financial option like mutual fund at regular intervals.
Mutual Fund – Mutual Fund is not a way but the destination where the money get’s invested.
Investment Approach & Flexibility
SIP – As I mentioned, in SIP you have to invest some amount that you can change any time but it should be invested on a consistent basis (monthly or quarterly). You can change the amount how much you wanted to invest every month as per you or can set a specific amount that will automatically gets debited at fixed time period
Mutual Fund – Mutual fund gives you both the option either you can invest via SIP or in one shot commonly known as lumpsum amount.
Investment Types
SIP – In SIP you don’t have the investment types but here you can choose the frequency of your investing like monthly, quarterly, or half yearly (every six monthly).
Mutual Fund – There are multiple types of mutual fund available where you can invest in like, equity fund, debt fund, hybrid funds, etc.
Lock In Period
SIP – SIP don’t have any lock in period or restrictions as such, you can redeem them any time also, you can stop investing via SIP any time and keep the money as it is that you have already invested and it will keep compounding till the time it stay invested.
Mutual Fund – They have a lock in period before that you can’t sell or redeem them like Equity linked Saving Scheme (ELSS) has a 3 years lock in period.
Suitability
SIP – If you are a salaried person or have a regular income source from which you want some amount as low as Rs. 200 to invest regularly to startly building a wealth corpus then SIP investment can be the best suitable option for you.
Mutual Fund – If you are someone who have time to keep checking the markets also have an experience of financial market or stock market with that you wanted to invest a lumpsum amount once a year then mutual fund investing can be the best suitable option for you.
Taxation
SIP – They are taxed same as of mutual fund. But if you are looking for a SIP which is tax free under 80c then you can invest in ELSS fund.
Mutual Fund – They are taxed different based upon what type of fund you are invested. To learn how SIP or mutual fund are taxed then you can read the below article for in depth and quick information regarding Mutual fund taxation.
Frequently Asked Questions
SIP or Mutual Fund which is better?
Both, SIP and Mutual Fund has their pros and cons. Ultimately you need to access yourself first to know what will be the best suited option for you. But for most people who have a small amount to invest, have a regular income source, and have a long term horizon of investment like 8-10 years then doing a SIP in mutual fund can be the best suited option for you.
Benefits of SIP in mutual funds
The main advantage of doing SIP in mutual is that you don't need to actively involve and keep a update about how stock market is performing as due to rupee cost average you ultimately keep investing in both bullish and bearish market due to which the risk of entering in the market at the wrong time is decreases.
How to start mutual fund SIP?
To start SIP investment in mutual fund, first you need to open a demat account and have to complete your KYC. Once, it is completed you can start investing in the mutual funds using your demat account itself.
Best SIP date for mutual fund?
There is no best SIP date for mutual fund, you should start investing as much early as possible because with the power of rupee cost averaging, your average investing price gets adjusted. Hence, you will be in profit anyway if you have a long term horizon of minimum 8 years
Stock SIP vs Mutual Fund SIP
Stock SIP is the best way to invest some amount regularly on a specific stock while through mutual fund SIP your money is invested in a fund that has multiple stocks, bonds, treasury bills, etc. depending upon mutual fund type, to diversify and mitigate the risk for investors.
Is mutual fund safe or SIP?
Both mutual fund and SIP are safe and risky, but for most people investing in mutual through SIP is the safest and profitable option in the long term.
Final Words About Mutual Fund vs SIP
As a beginner, investing in mutual fund and SIP may look bit difficult.
But do note doing a SIP in mutual fund can be a great decision if you are starting out and don’t have a big saving that you can invest in just one shot.
We all know slowly and steady wins the race, same is with SIP and mutual fund, if you stay consistent for a long period of time and can keep increasing the amount you are investing may be once a year only by 5-10%.
Then you can easily build a million dollar wealth corpus in next 15-20 years time period and can have enough saving to retire safely.
Disclaimer: The Honest American provides stock market news and strategies for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
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