A Mutual Fund is a monetary vehicle that collects money from various investors in order to invest in different equities like Bonds, assets, and other money market securities. These investments are managed on a day-to-day basis by professional fund managers, who make an effort to maximize the profit ratio with the lowest risk. The money is invested in various assets, which lowers the risk of market fluctuations.
One of the safest investment options for people who want to make a one-time, lump-sum commitment is mutual funds.
SIP (Systematic Investment Plan)
SIP gives an option to investors to invest a fixed amount of money on a recurring basis. One can invest a minimum of Rs.500 through SIP each month or every three months.
Benefits of SIP
When you start investing regularly through a SIP, your money grows by the compounding effect. Consider the following example:
Let’s suppose there are two people, Arun and Varun.
- Arun and Varun start investing for his 50th birthday when they are 20 and 30, respectively.
- Assuming a return of 8% with an investment of Rs.1000 every month.
- Here’s how much they can earn until their 50th birthday.
||No. of years
||Investment amount (Rs.)
Therefore, the earlier you start investing, the higher the possibility that you could get a higher investment result at the maturity period.
SIP gives investors more freedom as they can increase or decrease the amount of their investment at any time.
It is one of the affordable investments that you can do at an early age without pressurizing your budget. One can start with Rs.500 or Rs.1000 per month.
The Primary Difference between Mutual Funds and SIPs
Mutual fund investments are made in a lump sum, while SIP investments are made in smaller amounts monthly, quarterly, or even semi-annually.
Charges like transaction costs, annual maintenance charges, and other charges are higher in mutual funds as compared to SIP.
SIP offers you higher flexibility as you can invest small amounts at your convenience. It’s the best option for those who have a regular income.
While in a mutual fund, a person should have a bulky surplus fund.