What Are Mutual Funds?
A mutual fund is a company that takes money from many investors to invest it, to buy a huge amount of stocks, bonds, or other investments.
Key points about mutual funds:
- You usually put in a large amount of money at once.
- Professional managers handle your investment.
- Your money is spread across different investments to lower risk.
- It's a popular choice—over 8 million new accounts were added in 2020!
What Is SIP?
SIP stands for systematic investment plan. It’s like a piggy bank for grownups. Instead of putting in a big chunk of money all at once, you add a little amount regularly; it may be every month or every three months.
Important things to know about SIP:
The weekly charges begin at 500 rupees for a month, therefore meaning you can plan for it depending on your economic capability.
It is about investing in mutual funds without pestering ourselves with unanswerable questions like where to invest.
Those of you that have money in a bank will tell you it’s because money compounds over time by something known as compound interest.
Q: Do I need to invest a large amount in a mutual fund?
Ans: Yes.
Q: Can I withdraw money from a mutual fund and SIP at any time?
Ans: Yes! Both offer easy redemption.
Difference between: Mutual funds Vs SIP
| Aspect | Mutual Funds | SIP (Systematic Investment Plan) |
| How You Invest | A large sum of money is invested all at once or initially. | Small, frequent investments over time. |
| Market Changes | Major market shifts can significantly impact returns. | Less impacted by market volatility. |
| Costs | Typically more expensive due to larger contributions. | Lower costs as investments are smaller. |
| Getting Your Money Back | Easily redeemable, but may involve higher fees. | Easily redeemable with generally lower fees. |
Benefits of both mutual funds & SIP
| Benefits of Both (Mutual Funds & SIPs) | Details |
| Safer than individual stocks | Diversifies investment, reducing risk compared to buying single stocks. |
| Professionally managed | Fund managers with expertise handle your investments. |
| Start with small amounts | SIPs allow investments with low initial capital. |
| Tax-saving benefits | Eligible for tax deductions up to ₹1,50,000 under Section 80C. |
Conclusion
SIPs, also like mutual funds, are many-sided investment products and widely popular among the investors. Buying funds also has the added benefit of an individual being able to invest a lump sum, which will yield good returns if the market swings are in an upward fashion.
But it provides an opportunity to invest in retail by way of systematic investments in a reasonable amount that are able to inculcate discipline in the equity markets.
However, if you are okay with one-time expenses and can afford the fluctuation in the stock markets, then mutual funds may be your cup of tea.
