Mutual funds are becoming extremely popular these days mainly due to the high return rate and comparatively lower volatility. A mutual fund is a great form of investment for all kinds of people. It is an investment vehicle where you can pool your money along with other investors and enjoy returns on their capital. A professional fund manager manages the investment by investing the corpus in different securities and looking out for potential returns.
Anybody can invest in Mutual Funds and it does not have to be a gargantuan sum. There are several schemes that even allow people to make regular investments if they do not have a lump sum at their disposal.
SIP is one such facility offered under mutual funds that allows you to invest systematically. The amount can be as low as Rs. 500. Such schemes work great for a vast variety of people. Mutual funds are one of the reasons why people are gravitating more towards investments other than banks. The latter, although considered safer popularly, does not give as much return as the former. While both are quite similar there is a certain difference between SIP and mutual funds. You can find out which one suits you the best at Navi and invest accordingly.
Difference Between SIP and Mutual Funds Lumpsum Investment
The major difference between SIP and mutual funds is the type of investment. You can either make a disciplinary investment with mutual funds or opt for an investment of a lump sum amount. The former is called SIP or Systematic Investment Plan and the latter is known as lumpsum investment. SIP lets you invest a fixed amount in a given period. You can purchase a certain number of fund units using this money. If you keep on doing this for a long time, you can invest in funds during highs and lows.
A lump sum investment in mutual funds is also a popular form of investment. You invest the entire amount in one go and wait for its tenure to end. There is no need to keep investing each month.
If you are confused between the two, it is time that you assess the advantages that these two schemes give you and choose according to your convenience.
Advantages of SIP
Low initial investment
The initial investment in SIPs is as low as Rs. 500. You can later increase your investment with an increment in your income. All you need to do is top up your SIPs religiously.
SIPs give you high returns with a low initial investment.
Rupee Cost Averaging
Rupee cost averaging is an idea where one can purchase more units when the NAV or Net Asset Value of a fund is low. And when the net asset value of the same fund is high, you can purchase lesser units. This averages your purchasing costs.
Convenience
People who do not have time for detailed market research and analysis find this kind of investment very convenient and safe. You need not make a diverse portfolio with SIP or worry about timing the market. Once you have picked a good fund, your bank and SIP take care of your investment.
Advantages of Lump Sum Mutual Fund Investment
Ideal for Long Term Tenure
Individuals who like to invest in long-term tenure will find this sort of investment right down their alley. Ideally, one must invest a lump sum for 10 years or more. You can also opt for a medium-term tenure in case of lump sum investment in debt funds.
Invest for the Timing
Keeping in mind the market timing is a major difference between SIP and mutual funds. It is very important when choosing a long-term investment. The best time to invest is when the market is in a slump and has the potential for growth shortly.
Individuals earn higher returns when this growth takes place compared to the SIP mode. In case you make the investment when markets are already soaring, you might end up with a loss.
Investment of Big Amount
Another difference between SIP and mutual funds is the sum of investment. Most people opt for fixed deposits in a bank when they have a lump sum money in their hands that they wish to save for the long term. But banks give an extremely low rate of interest and by the time you get your returns, the market has already changed and the money amounts to almost the same evaluation. But with mutual funds, your money grows according to the market and you get a major return. This works great for people who are willing to take a little risk for much larger gains.
The difference between SIP and mutual funds is not a huge one. Whether you should invest in a SIP or lump sum mutual funds scheme is your personal choice. It depends largely on the kind of money you have at hand to invest. In case you are a salaried individual who is yet to accumulate big savings, SIP is the best policy as it will inculcate in you the habit of saving and you also get a higher sum of return when your tenure matures. But if you have lump sum money at your disposal, the other options work better provided that you have invested at the right time.
