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A Systematic Investment Plan (SIP) is a disciplined way to save. Under an SIP, you choose to invest a certain amount at regular intervals with the objective of earning profits. Regular investing allows you to accumulate your capital over a period of time. You may use an SIP for any financial instrument, such as mutual funds, equities, or bank deposits.
Difference between equity and mutual fund
Equity provides you ownership of the company. For example, if you hold 100 shares in a company that has issued 10,000 shares, you are the owner of 1% of this company. As a part owner of the company, you are entitled to receive benefits through dividends. However, if the company does not perform well, there is a risk of losing your capital investment.
2. Mutual funds
Mutual funds pool money from several investors to invest in different financial instruments. The corpus may be invested in equities, debt instruments, or other types of securities. There are different types of funds, such as equity-related schemes, debt funds, and balanced funds. Each of these fund types invests in financial products based on its investment objectives and philosophy. A major advantage of investing in mutual funds is that you are able to diversify your portfolio and reduce the risks. Furthermore, you may be able to generate regular income through debt funds. Compared to interest earned on a savings account and fixed deposit, you may be able to earn higher returns through mutual fund investing.
When you choose to invest a fixed amount in shares through a SIP, it is known as equity SIP. On the other hand, when you choose to regularly invest in mutual funds, it is referred to as mutual fund SIP. Opting for an SIP allows you to avoid timing the market and helps decrease the volatility due to fluctuating market conditions.
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