Stock SIP vs Mutual Fund SIP

A Stock SIP involves investing a fixed amount regularly in one or more chosen stocks. Whereas in a mutual fund SIP, a fixed amount is invested in a fund that holds many different stocks managed by experts. The main difference is that Stock SIPs allow the investor to choose each stock individually, while mutual fund SIPs spread funds across many companies to potentially reduce risk. Stock SIPs may give reasonable returns but carry higher risk. Mutual fund SIPs have diversified allocation and are managed by professionals. This article explains stock SIP vs mutual fund SIP in detail. 

Difference between Stock SIP and Mutual Fund SIP 

Here is the difference between Stock SIP and mutual fund SIP: 

Tax Implications of Stock SIP and Mutual Fund SIP 

Taxes affect how much a person potentially earns from investing. Here is a breakdown of how equity SIP vs mutual fund SIP are taxed. 

Tax Rules for Stock SIP 

Following are the tax rules for stock SIP -  

• Capital Gains Tax: 

If a person sells stocks within 1 year, potential profits are taxed at 20% (short-term). 

If stocks are sold after 1 year and the capital gains are above ₹1 lakh in a year, the extra amount is taxed at 12.5% (long-term). 

• Dividends: 

Dividend funds are added to the person’s income and taxed as per their tax slab. 

• STT (Securities Transaction Tax): 

A tax is charged every time stocks are bought or sold. 

Tax Rules for Mutual Fund SIP 

Following are the tax rules for mutual fund SIP - 

• Equity Mutual Funds: 

These follow the same tax rules as stocks for capital gains. 

• Debt Mutual Funds: 

Any potential profit is added to the person’s income and taxed as per their tax slab, no matter how long they held the fund. 

• Dividends: 

Dividend funds are taxed according to the person’s income tax slab. 

• STT: 

This tax applies only to equity mutual funds. Stock SIPs and equity mutual fund SIPs follow similar tax rules, but debt mutual funds are taxed differently. Understanding these taxes is essential for investors to make appropriate long-term investment choices. 

Conclusion 

Both stock and mutual fund SIPs allow individuals to make consistent investments and gradually increase their wealth. While mutual fund SIPs may provide access to a diversified and professionally managed portfolio, stock SIPs can offer relatively more control but carry a larger risk. Investors may monitor and manage both the investment options with the help of a reliable stock market trading app. How much risk a person is willing to take and how much time they want to spend studying the market determine which option may suit.