Investors believe SIP is an alternative to mutual funds. A mutual fund is a type of investment product that gives investors the opportunity to choose from a large number of different mutual fund schemes in accordance with their investment objectives and levels of expertise. On the other hand, SIP is a convenient way to invest in mutual fund schemes, not an investment product.
- Many investors mistakenly believe that SIPs and mutual funds are mutually exclusive investments. This is simply not true.
- You need to understand that a systematic investment plan, also known as a SIP, is an investment in mutual funds that is made on a consistent and systematic basis.
- A fund manager assembles a collection of investors’ money into a single entity called a mutual fund.
- Investors have a number of options, including investing in a mix of equity and debt, liquid assets, or all four.
- Until there is a tax clause that prevents you from selling your shares, you own a percentage of the fund when you put money in a mutual fund.
- First, let’s take a look at the differences between a SIP and a mutual fund, and then we’ll compare the two to see which one is the better investment option.
What Is the Process for SIPs to Take Place?
- An SIP investment buys the same number of mutual fund units as the amount of money you put into the account. By using a systematic investment plan (SIP), you may take advantage of rising and falling market movements without having to worry about market timing.
- SIP is a mutual fund investment plan that allows investors to put a predetermined amount of money into a mutual fund each week, month or quarterly for a set period of time. A monthly investment in a mutual fund can be made for as little as Rs. 500 if the investor wishes to.
- You make more purchases of fund units whenever the markets are falling, but you make fewer purchases of fund units whenever the markets are rising.
- It’s possible that the cost of a SIP installment may change from one day to the next because mutual fund Net Asset Value (NAVs) is revised every day.
- The price of a purchase becomes more affordable over time as the cost of goods and services decreases which is also called as Rupee cost averaging. Investments of large sums or with odd / even amounts are not eligible for this benefit.
Example : In order to begin investing using a Systematic Investment Plan, you will need to make decisions regarding the few things first, such as, amount to invest, payment cycle (weekly, monthly etc), date of payment. Let’s assume you want to invest Rs. 4000 in the XZY Fund on 5th day of every month. Hence, from now on wards Rs.4000 will be your SIP amount to invest in a mutual fund for some specific amount of time.
Advantages of SIPs
- Systematic Investment Planning (SIPs) can be set up to correspond with our monthly revenue cycles. Because of their hands-off nature, systematic investment plans (SIPs) are ideally suited to solve the age-old problem of investors cashing out during bull markets and putting their money back in during bear markets.
- SIPs are versatile since they allow small deposits and offer compounding benefits.
- A biggest benefit for typical investors is that the averaging cost feature eliminates the need to constantly monitor the market to determine when to participate and quit it.
What’s better, a SIP or a lump sum?
SIPs and lump sum investments both allow investors to reap the benefits of mutual fund asset building. Nevertheless, the periodicity of investments is the fundamental distinction that can be seen between SIP and lump sum (Single payment) strategies.
- With systematic investment plans (SIPs), you can make regular contributions to a mutual fund scheme on a schedule that works for you. A lump-sum investment, on the other hand, is a one-time, large investment in a certain mutual fund plan. For Example Rs.10 lakhs invested for some xzy funds for some specific time.
- Additionally, the minimum amount required for an investment can be different. SIPs can be started with minimum Rs.500 each month, whereas lump-sum investments typically require at least Rs.1000 to get started.
- Small, regular investments (SIPs) may be a better option for investors with a limited amount of money to invest. It’s possible that lump-sum investments will work out better for individuals that have a higher investment amount and a higher tolerance for risk.
From the different perspectives , we can say that SIPs do not require regular monitoring of financial markets, they are an excellent investment choice even for first-time investors because they can help you weather the ups and downs of the market and do not require as much attention as other types of investments do. But never take investment related decisions based sentiments. We recommend you to consult expert or learn before making any move. This article is for education purpose only and we do not provide any investment related consultation. We hope you like this article. Keep supporting us.
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