People many times get confused that mutual funds and SIPs are same but they don’t know there are some fundamental differences between mutual funds and SIPs.

What are Mutual Funds:

A mutual fund is a group of investments, such as stocks and bonds in the single fund. This way mutual fund allows you to invest in different companies at the same time.

In simple language we can say that a mutual fund is a financial instrument, which pools yours and other investors’ money in the stock market, if you opt for an equity mutual fund.

Types of Mutual Funds:

1. Equity Mutual Fund
2. Debt Mutual Fund

1. Equity Mutual Fund
An equity mutual fund invests largely in the stock of various companies to generate returns.

2. Debt Mutual Fund
Debt funds are generally a mixture of debt or fixed income securities like Government securities, Treasury Bills, Corporate Bond other money market instruments and debt securities of different maturities.

To invest in mutual fund, there are two methods.

1. Lump sum
2. SIP (Systematic Investment Plan)

1. Lump sum
A lumpsum is a bulk investment which an investor invests in one go. Most of the time investors prefer lumpsum investments in debt and balanced mutual funds.

2. SIP (Systematic Investment Plan)
SIP is the process of investing a fixed amount in a mutual fund and gets the benefits of the market volatility. You decide the amount that you would wish to invest at specific intervals along with the scheme you prefer.

How dose SIP work?

Through SIP you can invest in any type of mutual funds, which help you to create the wealth over long term. If you want to create your handsome portfolio, you should invest through SIP in mutual funds and this amount get automatically deducted from your bank account at the regular intervals which you choose.

Building the investing habit

So a SIP is just a familiar method of investment. The concept is to follow the principle of save before you spend. This habit helps you to prepare for your goals such as higher Education of your child, Retirement planning, Home purchase etc.

Hope you understand by now that a SIP is not a different type of investment. It is just another vehicle towards ‘monthly Investment’.

Stock markets are volatile: Some months they are high and some month they are low. So, investing each month average out the purchase price. That’s why SIP works best for equity mutual funds and if you really unsure about the market movements then SIPs should be your best way to get exposure in the market.

It is always better to invest in guidance of wealth management companies. Wealth Redefine wishes you all the best for your investment journey.