SIP in Mutual Funds Vs Systematic Equity Plan – Which one is better?

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Nowadays Mutual fund investments are preferred by many investors because it’s the easiest way to enter the stock market. The returns from mutual funds also are comparatively above various other investment avenues. All investors’ money is pooled into the fund. The Fund managers make all the required research about companies, their fundamentals, stock price movements then cherry-pick the stocks. If you are not having any experience in stock investing then also you do not have to worry because your money is invested in several assets by thorough professionals who are guided by research analysts. Since money is invested in various assets, risk reduces and hence the loss in one asset is often offset by profit in another asset. The fund managers expire the returns generated from investments to investors.

The investors can be busy with their lives and it’s going to not be possible for us to trace the stock exchange all the time. But markets are volatile and stock prices may change every moment. That’s where fund managers come to our rescue. They constantly watch the markets and make the proper decisions about investments.

Now that we all know about the merit of investing in mutual funds, allow us to see the difference between SIP and open-end fund investment through the lumpsum investments method

Systematic Investment Plan SIP may be a method of investment during an open-end fund and not a product.

What is SIP?

(Systematic Investment Plan) maybe an open-end fund tool that brings financial discipline because it may be a simple way of investing on a daily basis. Even people that are afraid to take a position in equity, get into the stock exchange by investing in mutual funds.

You can choose your type of mutual funds from various types on the basis of your goals and level of risk-taking capacity. If you’re an individual afraid to require high risks, then you’ll invest in a mutual fund that invests majorly in debt funds and if you’re a high gambler, you’ll invest majorly in a mutual fund that invests majorly inequities.

Why do you have to invest in SIP?

Those who have long-term plans in their personal or family life are happier with Systematic Investment Plan when considering mutual fund investment options. It’s necessary to know that the one-time payment option on the other hand doesn’t give MF investors a high degree of advantages, since it doesn’t take under consideration the fund downturn, which the SIP plan does. No wonder Systematic Investment Plan becomes a well-liked option when it involves investing in a mutual fund of your choice.

SIP is brief for the Systematic Investment Plan. Once you plan to invest, you’ll either save the amount to take a part in investment in one go or make small investments every month/quarter. With SIP you’ll invest as low as Rs 500 per month also depending on the mutual fund scheme and therefore the fund house.

Almost all mutual funds have the SIP facility, but the minimum amount required to make an investment may differ.

What does a Systematic Equity Plan (SEP) in Stocks mean?

Under Systematic Equity Plan (SEP) available, the investor invests sums of cash monthly on a specific date during a particular stock. It’s been observed that investing in good quality blue-chip stocks over an extended period of your time has helped in creating wealth for investors. Because the amount invested is the same in the least intervals (rounded to nearest share value amount), you get more stocks when the costs are low and fewer stocks when the costs are high. In this manner, the pricing of the stocks gets averaged. One can build a portfolio of a considerable number of shares of excellent company stocks over a period of your time.

E.g. A person who is currently trading at Rs 115 per share. Anyone would think his share has good potential in the medium to future. you would possibly want to take an investment of Rs 10,000 monthly therein. you’ll buy Rs 10,000 worth of shares monthly. You’ll buy 85 shares (rounded-off) monthly / quarter if the worth is at Rs 115, if the worth is increased, you’d buy less no of shares and if the price falls, you’d buy a high no of shares.

Now, let us quickly check what are the major differences in SIP in Mutual Funds and SEP in Equity and which is better.

# Every month investment in SIP vs SEP

As we know in SIPs investor’s money is invested with the help of fund managers in various sectors as per the investment objective of the fund. So the Net Asset Value of mutual funds does not fluctuate as the stock prices fluctuate. Whereas in SEP we invest in the Stock market. When a particular stock is bought at a certain price and if in the coming month the conditions are not favorable then also we still have to invest in the same stock.

# What returns we get – SIP vs SEP

In SEP if the market is falling then you may get fewer returns whereas in SIP the fund managers invest in different types of stocks or other investment methods so the returns are not much affected. 

# Choosing your investment stocks – SIP vs SEP

Since in SEP the investment is made by the investors themselves, they themselves have to choose the stocks in which investments are to be made. In SIP, the investors need not select the equity stocks. Our investments are managed by fund managers who are financial experts. So, the risk in the hands of investors is minimized.

# Tax advantages

MF investors needn’t pay taxes when fund managers churn the scheme portfolios but need to pay capital gain taxes only when they redeem their investments, while investors in direct equities are subject to tax liabilities whenever they change their holding pattern.

SIP and SEP both are different ways of investing only. While sip is a tool to invest in mutual funds in sep you can directly invest in equity. SEP is managed by professional investors. The advantage of sep is that you may choose which stock(s) to invest in, while in the case of SIP, fund managers take the call regarding the selection of stocks.

So, you should go for SEP, only if you are an expert in equity investments, otherwise, it’s always better to invest in Mutual Funds through SIP.

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