Key Differences Between Systematic Investment Plan (SIP) and Other Types of Investment Options

by Avinash Meheta Sip mutual fund 

Investment options like FDs, PPFs, real estate, gold, pension funds, and stock market are some of the most popular investment options in India. They’ve been trusted upon by the older generation for several years. While the younger lot seems to be following the suit, increasing number of young investors are now investing in mutual funds through SIP.

While mutual funds have been around for a long time too, it is only in the past few years that they've witnessed unprecedented popularity. As a result, new investors are often lost between SIP and all the other popular investment options.

If you too are struggling with the same, these key differences between SIPs and other investments can help you decide-

1. Returns on Investment

The most important factor for most of the investors when selecting an investment is the returns they can earn on the amount they invest. As compared to the traditionally popular options like FDs and PPFs, mutual funds are known to offer higher or comparable returns.

However, the high-earning potential of mutual funds is accompanied with higher risk. While some of the investment options are completely risk-free, none of the mutual fund types is free from risk. Even debt funds which are known to be the safest type of mutual funds carry some amount of risk.

2. Investment Tenure

This is one aspect where SIPs are the most flexible. Unless you’re investing in the tax-saving ELSS funds which have a lock-in period of 3 years, you can deposit and withdraw money from mutual funds anytime.

While some of the funds do have an exit load, SIPs are still highly flexible with regards to the investment tenure. On the other hand, investment options like PPF and FD have a considerably longer lock-in period with higher penalties for withdrawal before the term.

3. Investmentment Barrier

You can start a SIP with just Rs. 500. This makes SIP the most affordable way to start investing your money when compared with all the other types of investment options. This is especially true when we talk about options such as real estate investments.

While real estate has consistently proved to be an excellent investment option, the skyrocketing cost of real estate in the country makes it an impractical choice for most investors.

4. Taxation

The taxation of mutual funds varies between different types of funds. For instance, ELSS funds allow a tax deduction of up to Rs. 1.5 lakhs in a financial year. Upon redemption, LTCG (Long-Term Capital Gains) of up to Rs. 1 lakh are tax-free while the LTCG above Rs. 1 lakh is taxed at 10%.

The same is true for equity funds too. However, if you redeem the equity fund units before 12 months, you'll have to pay STCG (Short-Term Capital Gains) tax at 15%. LTCG on debt funds is 20% after indexation, and the STCG from your investment in these funds is added to your income and taxed as per your income tax slab. But as compared to options like FDs, mutual funds still prove to be a better option with regards to taxation.

5. Investment Objective

When it comes to Systematic Investment Plan (SIP), you have many different types of mutual funds to choose from. No matter what your investment objective, risk profile, age, or marital status is, there is now a fund for everyone.

You don't get to experience this flexibility with other types of investments, making SIPs an excellent option for every investor.


Every type of investment has its pros and cons, and the same is true with mutual funds too. But when compared to most other forms of popular investment options, mutual funds are generally a step ahead. In the end, it all boils down to what you're expecting from your investment.

Focus on the points discussed above when analysing all the different investment options and you'll surely be able to make a smart decision.


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About Avinash Meheta Junior   Sip mutual fund 

1 connections, 0 recommendations, 11 honor points.
Joined APSense since, July 10th, 2017, From Mumbai, India.

Created on Dec 3rd 2018 04:39. Viewed 830 times.


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