Using a structured investment plan like SIP to invest in mutual funds has become quite popular. Continue reading to learn why mutual funds are such an excellent way to invest, along with the benefits of SIP to support your future financial goals.

Everyone has dreams, ambitions, and objectives they want to attain. For example, everyone wishes to be financially secure in their lives. For example, a new car, a bigger house, or a family vacation to an exotic location. However, you can only achieve your objectives if you put up the effort necessary to make them a reality.

Using a Systematic Investment Plan (SIP) to invest in mutual funds might be a straightforward solution to help you reach your objectives. So, let's look at what SIP stands for, how they operate, the benefits of SIP, and how your financial goals can seem attainable by investing in SIP

WHAT IS SIP?

A Systematic Investment Plan (or SIP) is a mutual fund investment that allows you to invest over time. It is a systematic way of regularly investing fixed amounts of funds, such as monthly, quarterly, or semi-annual. It may be simpler to reach your financial objectives if you invest consistently in this manner.

SIP in mutual funds is a monthly investment plan in which you invest a certain amount of money in a scheme of your choice. The money is automatically deducted from your bank account because of the setup.

HOW DOES SIP WORK?

A systematic investment plan (SIP) is a simple instrument that allows you to create wealth by making small, regular deposits over a longer time horizon. There are many benefits of SIP investment in mutual funds.

When you start SIP in a mutual fund scheme, you can buy a set number of fund units. You can invest in the fund at both highs and lows. You don't have to time the market to earn money. This element of uncertainty is removed with SIP investing.

You can select to automate your investments once you've chosen the investment term and frequency. Then, give your bank a standing instruction to transfer money from your bank account to the mutual fund SIP of your choice regularly (monthly, quarterly, etc.).

WHAT ARE THE BENEFITS OF SIP IN MUTUAL FUNDS?

Investors have a wide range of options to choose from when it comes to making investments, such as debt v/s equity, active v/s passive funds, mutual funds v/s stocks, value v/s growth investing, etc. While investing in the stock market, growth and value investing are two investment strategies that investors can choose from.

Both the approaches serve different purposes and are widely popular and adopted by investors to boost their wealth in the stock market.

Fundamental research helps to distinguish between value v/s growth stocks. Let us study each approach in detail before telling the differences between them.

WHAT IS GROWTH INVESTING?

The Growth Investing approach represents companies with higher potential to outperform earning and are expected to continue delivering high returns of profit growth. Growth stocks are found in small-cap, mid-cap, and large-cap funds. Investors are willing to invest and pay a higher price in anticipation of higher growth or return in the near future.

Investors are optimistic about its business strategy and its prospects for development in the foreseeable future. Several factors may inspire investor confidence, including the company's competitive position or the expectation of positive reception to the company's following product line.

Furthermore, their higher price-to-earnings ratio makes these stocks more 'expensive' than their rivals. That is the reason why investors are willing to pay a higher price for these equities than they are now earning because they believe future earnings will justify the price.

WHAT IS VALUE INVESTING?

The value investing approach usually picks out undervalued stocks or those whose current market price is less than their inherent worth. Hence, they progress slowly, but they do have higher underlying worth. The notion is that the market will quickly perceive the value, and the share price would 'catch up,' resulting in significant returns. So, for example, if the stock's actual value is Rs. 30/- per share but it is trading at Rs. 25/- at the moment, the analyst will consider this to be a good value pay.

Value stocks can be undervalued for many reasons, such as economic conditions, legal problems, negative publicity, disappointing earnings, etc. All of these reasons raise doubt about the company's long-term prospects. However, they bounce back slowly, and such value stocks are most suitable for long-term investors and may carry more risk of price fluctuations than growth stocks.

There has been a constant battle between value v/s growth investing that has been going on for years, and both approaches have suitable arguments to back them up. Some of the fundamental differences are that the key assumption about growth stocks is that the above-average performance will continue in the future. This is because companies that outperform their peers may be new or belong to an emerging sector that can become an industry leader in the future.

On the other hand, the value investing approach has a different perspective. Instead of focusing on record-breaking numbers, value investors choose companies that belong to mature sectors and have predictable revenues.

Another difference between value stocks v/s growth stocks is that when the interest rate decreases and corporate earnings rise, they stand a higher chance of outperforming their peers. However, it will be the first to be penalized when the economy slows down. Whereas value stocks may perform well in an early economic recovery but are more likely to underperform in the long-term bull market as continuous media coverage, a rumor, or a news story of the company's management may come out and create a panic sell-off.

VALUE V/S GROWTH INVESTING: WHICH IS BETTER?

When choosing one investment style between growth and value investing, there is no right or wrong while investing in the stock market. Instead, both approaches offer a unique set of objectives, merits, and risks. Therefore, it is best to adopt a hybrid strategy rather than selecting one investment style as both have their limitations.

FREQUENTLY ASKED QUESTIONS

• Which is better growth or value investing?

It all depends on the investor's financial situation and goal. For example, growth companies may perform well when interest rates are low and expected to stay low, but many investors may switch to value stocks when rates increase. Growth companies have lately outperformed value equities, but value stocks have an excellent long-term track record.

• Is growth investing riskier than value investing?

No investments are risk-free because the market cannot be predicted or completely controlled. That is why, before investing, you must evaluate all the pros and cons of growth investing and value investing. Regardless of that, value stocks are considered riskier than growth stocks. To become profitable, a value stock must change the company’s perception in the market, which is deemed riskier than a growing company.

• Do growth or value stocks pay dividends?

The typical value stock generates more dividend income than the average growth stock. This isn't unexpected, given that value stocks are often considered mature corporations that offer more significant dividends.

Disclaimer: All Mutual Funds are subject to market risk. Please read all scheme-related documents carefully.