Explained: Difference between SIP and Equity

‘SIP’ expanded as Systematic Investment Plan is not synonymous with the term ‘equity’. SIP can be viewed as a tool that lets an individual invest in mutual fund schemes on a regular basis. An SIP lets you stagger your investments in equity schemes over a period of time. This can be done on the quantum of money also. It is a convenient tool for salaried people to invest in equities regularly. It is also considered as a better way to invest in equity funds since it helps avoid caching the market at a particular level.

Equity is also called as the shareholder’s equity that stands for the amount the investor (shareholder) will get if all the company’s funds are liquidated and the company’s debts are paid off. It is the value of the share (ownership) the investor holds in the enterprise. Equity is also one of the most common metrics employed by analysts to assess the financial health of a company. To understand the term equity in simple terms, we can say it is the value of a person’s ownership in a given asset after subtracting all the debts connected with it.

Why is equity important?

The concept of equity is important because it refers to the value of the stakes an investor holds in a company. Any investor holding a stock in a company will be naturally interested in their personal equity in the enterprise which is represented by the total value of their shares. Personal equity is in fact a function of the company’s total equity. When an individual owns a stock in a company, it might yield a capital gain over a period of time. Stock price appreciation and dividends given out to the shareholders are the products of equity. Owning equity in a company gives the shareholders the right to elect the board of directors or vote in any elections connected with the enterprise. To make things simple and clear, equity is the shareholder’s stake in the company. Shareholder’s equity can either be negative or positive depending on the company’s financial health and performance.

Why SIP is important?

SIP imparts financial discipline to an individual’s life. It also helps the individual invest regularly without having to worry about the moods of the market, index levels and other considerations. When you wish to make a fixed amount of investment in a mutual fund scheme for example, you cannot help worrying about the market conditions. Depending on the scenario, you might need to postpone your investment decision if the investing environment is not conducive to appreciation or if it is not that healthy. A Sip on the other hand places an end to all such predicaments. The amount of money you specify in a SIP is automatically invested on a regular basis in the given scheme without any effort spared from your side. SIP helps average the buying cost. It also maximizes the returns. Many enterprises and schemes allow the investors to customize the way they wish to invest depending on their convenience.