Many investors might get confused with the concepts of SIP vs mutual funds. This article will discuss them in detail along with their differences.
Even though both SIP and mutual funds invest in the share market, they are not the same. This section will look at SIP vs mutual funds separately.
SIP (Systematic Investment Plan) is not a separate product but a way to invest in mutual funds. It helps you to systematically invest in a mutual fund plan over a certain period.
Some key factors about SIPs are -
Possibility to set monthly, or periodic payments that can be as low as Rs.500
They can be directly deducted from your bank account
Deductions can be on a yearly, monthly, fortnightly, weekly, or daily basis
It is hassle-free and user-friendly as you don’t have to invest a lumpsum amount
Facilitates you to build discipline in your investment habits
The annual maintenance charges are on the lower side
As a small sum of money is being invested periodically, the market tends to have a lesser impact on SIPs
Mutual funds refer to an investment tool that gathers the investors’ money, like you, and invests it in bonds, stocks, or other similar assets.
Some noteworthy points about mutual funds are -
They are managed by banks or Asset Management Companies (AMC)
They can be directly managed by you, known as a direct mutual fund plan
You can even decide to do it through a broker, agent, or intermediary who takes care of your portfolio; known as the regular mutual fund plan
If you invest lumpsum amounts in mutual funds, the annual maintenance charges will be on the higher side
Lumpsum investments will also lead the fluctuating market to have a higher impact
There are two ways you can invest in mutual funds - lumpsum amounts or through recurring installments. When you set an amount to be deducted periodically to be invested in mutual funds, it is referred to as an SIP.
As SIP is a way for you to invest in mutual funds, there are not many major differences between the two. Here is a gist of the difference between SIP and mutual fund -
| Criteria | SIP | Mutual Funds |
|---|---|---|
|
Investment Process |
Done periodically |
Can be done in lumpsum or through SIPs |
|
Charges Incurred |
Low |
High |
|
Liquidity |
Both are equally liquidated forms of investment |
|
|
Volatility |
Low |
High |
Mutual funds are a good tool for long-term investments. It allows you a lot of flexibility in terms of managing your portfolio as well. You can invest in lumpsum or in recurring installments.
Both ways may be used to invest in the same stocks, and you can choose the one that meets your needs.
No, SIPs are not tax-free. They are a form of investment, and you have to pay taxes for your profits.
Both SIPs and mutual funds may be investing in the same stocks and will have the same portfolio exposure. Thus they both have the same risks, but since SIP investments happen over a long period of time, they help even out volatility in the market.
You can withdraw SIP at any time unless there is a pre-decided lock-in period.
Both the daily and monthly investments will give you the same protection from volatility. But in case you want to make long-term investments, daily SIPs are better.
Yes, there are several options available if you want to start an SIP for only 1 year.
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