Investing in the stock market is one of the most popular ways to create wealth. Mutual funds and Systematic Deposit Plans (SDP) are two popular investment options that offer long-term returns. While both options have their own pros and cons, it’s important to understand the differences between them to make the right investment choice.
Let’s dive into the differences and compare these investment options:
Definition of Mutual Funds and SDP
Mutual funds are professionally managed investment funds that pool money from multiple investors to purchase stocks, bonds, or a combination of both. Each investor owns a proportionate share of the holdings in the mutual fund and earns returns based on the performance of the portfolio.
Systematic Deposit Plans (SDP) are a type of fixed deposit investment option offered by banks and NBFCs. In SDPs, a fixed amount is invested every month into a fixed deposit account with a predetermined interest rate. This provides a steady and safe return on investment over a fixed period of time.
Returns on Investment
Mutual funds and SDPs offer different returns on investment. Mutual funds provide returns that are dependent on the stock market performance and the specific fund’s investment strategy. The returns on mutual funds can be volatile and may require a long-term investment horizon.
On the other hand, SDPs offer fixed returns that are predictable and stable. This makes them an ideal investment option for risk-averse investors who seek steady returns.
Investment horizon is the length of time an investor holds onto an investment. Mutual funds are considered long-term investments that require a minimum investment horizon of 3-5 years. This is because mutual funds are exposed to market risks and fluctuations. While short-term investments in mutual funds can yield higher returns, it is best to hold them for a longer period to gain the full potential of the investment.
SDPs, as mentioned earlier, provide a fixed return and fixed horizon. They can be considered for both short-term and long-term investments based on the investment amount and how much the investors wish to deposit. They can also be utilized to create a safety net for a specific goal, such as children education, home buying, marriage, and more.
Mutual funds carry some level of risk because they are invested in the stock market. The risk of investing in mutual funds depends on the specific fund chosen, the market, and the fund manager’s expertise. Investors should have a thorough understanding of the investment portfolio, asset allocation, and risk profile of the fund before investing.
SDPs, on the other hand, are less risky because they offer fixed returns and are not dependent on the market factors. SDPs are also secured by the deposit under which the principal and interest amount are protected. Moreover, there are no market volatilities to face like mutual funds.
Comparative Analysis of Mutual Fund Apps
With the ease of technology, investing in mutual funds has become much more accessible. There are now several mutual fund apps available in the market, such as Bajaj Finserv, Groww, 5 paisa, Angel broking, Paytm Money, and many more. This makes it challenging for investors to select the best app for their investment decisions.
The following is a comparative analysis of popular mutual fund apps
Bajaj Finserv: The app offers a comprehensive range of mutual funds under various categories like equity, debt, and hybrid funds. Users can also open their mutual funds account at low commission. It provides great assistance to its users and offers features like easy investment, flexible SIP payment options, and real-time tracking of portfolio returns. Bajaj Finserv also offers an SIP calculator, SDPCalculator, and more which help investors plan their investments better.
Groww: It is one of the popular mutual fund apps that provide an extensive selection of mutual funds across categories like equity, debt, and hybrid funds. It offers direct mutual funds, which means users can save on commission fees. The app also offers services like SIP calculators, tax calculators, and expert assistance to its users.
5 Paisa: 5 Paisa app is another popular mutual fund app that offers a range of investment products like mutual funds, stocks, and derivatives. It offers free investment advice, a portfolio tracker, and uses AI-based technology to provide stock recommendations. 5 Paisa charges a low fee of Rs. 10/- per executed order.
Angel Broking: Angel Broking provides a broad range of mutual funds from different asset management companies (AMCs). Their mobile app provides investors with alerts and notifications about investment rates, new offerings, and mutual fund rankings. It also provides expert advice and suggestions to the investors and has a facility to invest in SIP and lumpsum investment modes.
Paytm Money: Paytm Money is a leading mutual fund investment app that offers an extensive range of mutual funds across numerous categories and tenures. It provides an intuitive and user-friendly interface and facilitates investment in mutual funds with a single click. Investors also receive an in-depth analysis of their portfolio, including capital gains/loss, and they can also access smaller-ticket size options.
Both mutual funds and SDPs offer great investment options for investors but depending on individual investment goals and risk appetite; investors should make an informed decision. It is essential to weigh the risks and benefits of each investment option and identify which option aligns better with your financial goals. Also, choosing the right mutual fund app, with calculators for better planning, tailored suggestions, and a user-friendly interface can make the investment decisions easier.