3 Replies to “What is Mutual Funds and SIP Please explain in detail.Which investment is best and safe.How to save tax?”

  1. Mutual Funds are easy to invest in. Basically, you give a lump sum to a mutual fund manager, or company (Vanguard, Fidelity, Morningstar) and they invest your money for you. They will invest how they see fit, which means you have no control over your money essentially, except in giving the money and taking it out. Mutual Fund Managers try to greatly diversify their portfolios, essentially meaning that they spread the money they reign over in numerous different companies (rather blindly, in my opinion.)

    SIP is just another way of giving your money to the Mutual Fund managers. Instead of giving them a lump sum, you give them monthly payments. (Minimum is either 500-1000 dollars) SIP is NOT a different type of investment, rather, a different entry into mutualfunds.

    Mutual Funds are usually safe, however, Mutual fund managers regularly underperform the market (or say, the S&P 500.) I would reccomend mutual funds for a first time investor, or someone who does’nt have time to spend monitoring their money. (Go figure) As far as safety, Mutual funds are typically safe for a long-term investment.

  2. MFs are an indirect way of investing money either in equity or debt, depending on your risk profile.
    SIP means Systematic Investment Plan. This is the best mode of investment. It is similar to a reccuring deposit. You can invest a small amount every month. Your purchase price of units gets averaged.
    Investment is debt MFs is safe but gives comparatively low returns.
    You can save tax by investing in ELSS of MFs. SIP in ELSS is not recommended as money gets locked-in for 3 years from the date of investment.

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