What is Mutual Fund and what is the meaning of SIP. What is the difference between Mutual Fund and SIP. Some people are unable to differentiate between Mutual Fund and SIP due to lack of information. So let us understand in very simple language what is the difference between mutual fund and SIP.
Table of Contents
What is Mutual Fund
Before understanding SIP, it is necessary to know what is Mutual Fund. Mutual fund houses invest in stocks, bonds, by collecting money from different investors. Mutual Funds work with the aim of creating wealth for their investors. There can be many schemes of a fund house. Such as large cap fund, small cap fund, liquid fund etc.
In simple language, Mutual Fund is a bucket in which Fund Houses (AMCs) collect and deposit money from different people. These funds are used to buy a variety of stocks, bonds, securities in the market. The mutual fund is valued on the basis of NAV (Net Asset Value) at the end of the trading day. A Mutual Fund scheme is operated by the fund manager. Fund managers are appointed by the AMC (Asset Management Company).
Ways to Invest in Mutual Funds
There are two main ways to invest in mutual funds. First Lump sum and second SIP. Mutual funds are based on the stock market. If you do not want to invest directly in the stock market by taking more risk, then Mutual Fund provides the facility of investing in mutual funds at low risk. You can use either Lump Sum or SIP option for this.
What is SIP
SIP means Systematic Investment Plan. In this, investors invest according to their goals and objectives. In SIP, money is invested in a mutual fund at a fixed time interval, usually 1 month. Due to which money keeps accumulating in mutual funds continuously and you are able to make good wealth in the long run. SIP is one such method which gives good returns in the long run with low risk.
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Difference between Mutual Fund and SIP
SIP is such a tool or medium through which you can invest in mutual funds. In most schemes of Mutual Funds, there is an option to invest through SIP.
You must have heard many times that invest in mutual funds. But how to invest in mutual funds remains a major question. SIP is the medium which provides us the facility to invest in Mutual Funds. In which you keep investing little by little in mutual funds.
Let us try to understand the difference between Mutual Fund and SIP through an example as SBI Mutual Fund House is an asset management company. It has a mutual fund scheme named SBI Bluechip Fund. Now you have to invest in SBI Bluechip Fund. Now you have 2 ways to invest here first lump sum i.e. you just put money in it once and leave it. Second SIP means that you keep investing in it continuously at a fixed interval.
Many new investors think that SIP is an investment option in itself due to lack of knowledge but it is not so. SIP is a hassle-free technique to do a smart investment. In short, if you want to invest in mutual funds, then you can invest in mutual funds through SIP.
SIP (Systematic Investment Plan)
Through SIP we can invest in many types of funds. SIP gives us the option that if we do not have a large amount but we want to invest in mutual funds, then we can invest in mutual funds through SIP. Through SIP we can start investing from Rs 500 and even Rs 100 in case of some funds. In this way, we can build good wealth by depositing little money through the SIP tool of mutual funds.
Why is SIP investment beneficial?
As you know, we can invest in mutual funds through SIP. We should invest through SIP because of the following reasons.
- Through SIP one gets the benefit of rupee average cost. Your SIP goes to the market with all kinds of conditions which are able to average the cost.
- SIP can give very good returns due to its compounding returns in the long run. The longer you stay invested, the higher will be your profits.
- Investing in SIP does not put any huge financial burden on the investor. You can start SIP even with a small amount. The cost of investing in SIP is also nominal, in which you get the services of professional experts.
Due to all the above reasons SIP is a great option for investing.
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Conclusion
You can make money by investing systematically in any mutual fund scheme. Anyone can invest in it due to the low investment requirement. Hope you have understood the difference between Mutual Fund and SIP. If you have any question related to the difference between Mutual Fund and SIP, then you can ask us through the comment box.
