INTRODUCTION
A Systematic Investment Plan, or SIP for short, is a systematic and convenient way of investing in Mutual Funds, as an investor invests a fixed sum regularly, either in the form of monthly investment or quarterly, instead of one-time payment. Starting from a minimum contribution as low as Rs 100 per month, it bears an analogy with a recurring deposit and, for easy remittance, takes auto payments every month.
This scheme is quite attractive for Indian investors and helps cultivate disciplined investment habits due to that. It can serve long-term goals quite well, and therefore it is proper to take advantage of time that goes by. “Start Early, Invest Regularly,” it says; there could be better returns eventually by contributing regularly.
A mutual fund is an investment vehicle that pools money from numerous investors into a collective capital base used for investing. The collected funds are usually invested in a wide array of securities, such as stocks, bonds, and money market instruments. Money managers actively managed funds.
Money managers are also referred to as teams of investment professionals who make various efforts to achieve the set goals of the fund. This kind of money permits the investor to diversify various assets by professional managers.
KEY DIFFERENCES
1.Investment Philosophy
SIP: It involves setting aside a fixed amount on regular dates, which further inculcates systematic saving and reduces the incidence of time-period volatility.
MF: It can be invested as a single sum or as a staggered sum-for example through SIPs. The manager invests based on a pre-defined objective of a given fund.
2. Protection against Risk
SIP: As its corpus of investments is spread over several dates, it reduces time-risk involved in market timing to an extent.
MF: Risk low to high, as the type of mutual fund, investment frequency, and market timing change.
3. Returns
SIP: Potential for higher returns in the long term; especially long-term investments do not offer returns in short periods
MF: Returns are generally better in the long run; however, it does carry higher risks, mostly with equity-oriented funds.
4. Flexibility
SIP: one can even discontinue or change their investment at any time.
MF: Sometimes it’s hard to sell or even redeem the mutual fund units, particularly for closed-end funds.
5. Costs
SIP: There can be investment with smaller quantum sums over a period of time and so is accessible by people from all walks of life, with different budget level capacities.
MF: SIP makes it possible to invest much more inexpensively in mutual fund. Much larger sums maybe needed to invest in this lump-sum fashion.
6. Volatility
SIP: Puts purchases to happen at different times – which again reduces exposure in a more prolonged market turn.
MF: Lump sum investments are more sensitive to market timing and even more volatile.
7. Investment Form
SIP: It is a Mutual Fund investment mode, wherein individuals will provide pre-determined amount at definite intervals.
MF: Investments could be done either in mutual funds through SIP or also as lump sum.
BENEFITS OF INVESTING IN SIP
1. Rupee-Cost Averaging: SIP provides periodic fixed investments that reduce market volatility impacts. You end up buying more units during low market times and less during the high market time, which averages out over time.
2. Professional Management: Investment in SIP also promises professional management that may yield better results than an individual making own stock selection decisions.
3. Financial Discipline: SIP aids in the forming of the habit of frequent investment by a fixed-investment schedule. It actually creates the disciplined savings habit with financial planning.
4. Compounding Power: SIPs work on compounding by reinvesting returns; hence, your investments keep on growing over time and might increase the overall value of your portfolio.
BENFITS OF INVESTING IN MUTUAL FUND
1. Professional Management: The schemes are handled by professionals who closely observe and monitor the portfolio so as to get the objectives met, with professional investment management.
2. Risk Diversification: One can reduce the risks with diversified risk by spreading over various types of asset classes such as equity, debt, or gold. In this process, it is less affected with market fluctuations.
3. Affordability & Convenience: Starting with less amount as compared to acquiring individual securities is possible here.
4. Liquidity: It provides easy redemption of units in open-ended schemes. Funds can be accessed very quickly, except for close-ended funds and schemes that have a lock-in period.
5. Low Cost: Economies of scale are enjoyed with low expense ratios, and thus mutual funds are a cost-effective investment option.
6. Well Regulated: The guidelines of SEBI have governed mutual funds, and with transparency and strict investor protection, all the guidelines are adhered to within the scope.
7. Tax benefits: Investments through ELSS are covered under Section 80C and long-term holdings are tax-efficient to a great extent.
CONCLUSION
SIP and mutual funds represent two different sides of investing. SIP is one form of investment in mutual funds through which money is invested diligently and consistently on a disciplined contribution basis that will similarly mitigate the shock of the volatility of the market and enhances long-term wealth creation as well.
A mutual fund is much more diversified kind of investment vehicle because the money of the investors gets pooled together for buying different types of diversified portfolios under different investment strategies and associated with varied risk levels as well.
The difference might enable investors to make decisions according to their financial goals and risk tolerance level or the approach to be adopted while investing.