Comparing the Benefits: Stock SIP vs. Mutual Fund SIP for Smart Investments
SIP investment | Image Resource: appreciatewealth.com
One of the ways to invest in the stock market is through a ‘Systematic Investment Plan’ - SIP. SIP allows you to invest a fixed amount of money regularly in stocks and mutual funds. Mutual Fund Systematic Investment Plan and Stock Systematic Investment Plan are the two famous ways of investing in the stock market.
In Stock SIP you can invest a certain fixed amount regularly in various stocks to build a portfolio full of stocks. It gets exposure to stocks and therefore has the potential for higher returns but carries higher risk.
Mutual Fund SIP allows you to invest a certain amount of money regularly in mutual funds which are managed by fund managers. It helps to diversify the portfolio.
Stocks SIP
In stock SIP, you invest a certain amount of money regularly in stocks that will lead to gradually acquiring shares over time. This systematic approach to investing offers advantages like cost-averaging. You can buy more units when the price is less and fewer units when the prices are high.
As stocks are subject to market volatility the SIP investment in stocks carry higher risks. This impacts the investment value as the stock prices fluctuate.
Mutual Funds SIP
In mutual fund SIP, investors can regularly invest a certain amount of money into mutual funds to build a diversified portfolio.
Difference between Stock SIP and Mutual Fund SIP
Stocks SIP requires individual stock selection, research, active monitoring and analysis skills. Mutual fund SIP does not require inventors to do such activities as mutual funds are managed by professionals and fund managers.
Stock SIP will suit investors with a higher risk appetite and knowledge of the stock market. Investing in mutual funds is for those looking to diversify their portfolio and professional management. Also for those who want to follow a disciplined approach to investing.
In Stock SIP the tax to be paid depends on the holding period. If the stocks are held for more than a year then they are considered to be long-term and subject to lower tax rates. For the short term, the tax is charged at the income tax rate.
Mutual Funds are subject to capital gains taxes when the fund manager sells securities within a portfolio.
The choice of Stock SIP or Mutual Fund SIP depends on various factors like investment goal, risk tolerance and knowledge of the stock market. Appreciate offers an app to invest and start SIP online.