Stock SIP vs Mutual Fund SIP: Which is less risky? Which gives higher returns?

Systematic Investment Plans (SIPs) are a great way to ensure disciplined and regular investing. Mutual Fund Systematic Investment Plans and Stock Systematic Investment Plans are two popular investment avenues that offer significantly higher returns and encourage regular investing. These SIPs could be a suitable choice for those investors who are looking for higher return and are open to deal with high investment instruments.

However, if you're wondering which one of these provides higher returns, here are a few factors you should know.

What is Stock SIP?

Stock SIP involves regular investment of a fixed amount into particular stocks and gradually leads to an accumulation of shares of that stock. Using a Stock SIP one can take advantage of cost averaging as they can buy more shares when the prices are low and vice versa.  However, it's important to note that a Stock SIP poses greater risk to your invested funds as they're highly subject to market volatility and fluctuations. In case of a market crash, a sizable amount of investment could be lost.

Furthermore, since one is investing in a particular stock there's no scope of diversifying their portfolio like mutual fund investments. It could be risky as all your investments would depend on one stock's performance. However, if that stock sees a bullish rally you might make more money than mutual fund investments. Also, in the long-run if the stock market is expected to maintain a bullish sentiment waiting for your investments to grow would be ideal.

What is Mutual Fund SIP?

Mutual Fund SIP refers to regular investing of a fixed amount into a mutual fund. By investing in a mutual fund regularly, you can diversify your investments as it allows you to invest in stocks across various industries. This ensures diversification of portfolio and mitigates potential risks as the return on investment isn't dependent on one particular stock or industry. Moreover, the weak performance of an individual asset or set of assets could be taken care of due to better performance of other investments.

By investing in a Mutual Fund SIP, Investors take advantage of rupee cost averaging as they purchase more mutual fund units when the prices are low and vice versa. Also, mutual funds are managed by professional fund managers who use their skills and expertise to invest your money to ensure substantial returns and safety of investment. However, in case of a market downturn, even mutual fund investments would be affected greatly, but it wouldn't be as significant as a Stock SIP.

Stock SIP vs Mutual Fund SIP: Risk and returns compared  

Stock SIP investments offer potentially higher returns; however, the risk is equally higher. On the other hand, a Mutual Fund SIP ensures diversification of portfolio and mitigates risk via professional management. Therefore, Mutual Fund SIPs are definitely less risky compared to Stock SIPs. In case of a Mutual Fund SIP, the returns are also lower and you need to stay invested for a particular period of time. But, the final choice should depend on your financial goal and risk tolerance.