Introduction
Investing in the equity market has not been this easy before. Many retail investors are now turning to this lucrative market to achieve their financial goals. One such avenue is the Systematic Investment Plan (SIP). SIPs offer a disciplined approach to focused and consistent investing for wealth generation. Since choice is a primary feature of the modern world, the world of SIPs also provides several choices. One decision you will have to make is choosing between stock SIP or mutual funds SIP.
This article will introduce you to what stock and mutual funds SIP mean, their features and key differences, and tips to choose the right SIP. Once armed with all this information, you can make informed decisions.
What is SIP in the Stock Market?
A SIP in the stock market, or a stock SIP, involves investing a fixed sum in a particular stock at predetermined intervals. You can decide the stock or stocks you want to invest in. This approach allows you to build a portfolio of stocks over a period. Depending on your stock SIP plan, you can purchase a predetermined quantity of shares periodically or invest a fixed sum periodically.
What is SIP in Mutual Funds?
A mutual fund SIP allows you to invest periodically in a mutual fund of your choice. Mutual funds not only grant access to a diversified portfolio of stocks for investment but are professionally managed, too. Instead of researching and choosing individual stocks, you can directly invest in a bucket of stocks chosen by the fund manager.
Stock SIP vs. Mutual Funds SIP: Key Differences
Stock SIP vs. Mutual Funds SIP: Which One to Choose?
Now that you know what stock and mutual funds SIPs are, the next step is to choose one. Use the tips below to choose the right SIP for yourself.
- If you can actively manage your investment and aren’t risk averse, consider stock SIP. However, consider mutual funds SIP if you want a low-risk option that does not require your active involvement.
- Since stock SIPs require active involvement, be prepared to undertake in-depth research to select the right stocks. After all, the returns are dependent on the stocks chosen. On the other hand, mutual funds SIP offers an accessible entry point without plenty of investment knowledge.
- The time commitment is also lower in a mutual fund SIP because the portfolio of stocks is chosen and managed by a fund manager. However, this is high in stock SIPs.
- The returns offered by stock SIPs are higher since they directly depend on stock performance and the absence of middlemen. The returns from mutual fund SIPs are lower due to portfolio diversification and the professional cost of fund management.
- If you are looking for a long-term investment with a higher return and don’t mind managing your portfolio, opt for a stock SIP. If you want a balanced approach to investing coupled with professional management, choose a mutual fund SIP.
Conclusion
Stock SIP and mutual funds SIP come with their own benefits and considerations. When choosing an investment option, the key factors to consider are your risk tolerance and investment objective. This, coupled with the returns and investment horizon, will help you determine what is right. Don’t forget that all investments are subject to market risk, and therefore, carefully read the investment-related documents before investing.
Financial Calculators: SWP Calculator | EMI Calculator | SIP Calculator | Compound Interest Calculator | CAGR Calculator | Sukanya Samriddhi Yojana Calculator | Retirement Calculator | Mutual Fund Returns Calculator | EPF Calculator | Inflation Calculator
Popular Stocks: ICICI Bank Share Price | HDFC Bank Share Price | CDSL Share Price | UPL Share Price | TCS Share Price | BHEL Share Price | Trident Share Price | IRFC Share Price | Adani Power Share Price