1. Difference Between DCA ( Dollar Cost Averaging ) and SIP (Systematic Investment Plan ) ( DCA VS SIP )
Dollar Cost Averaging ( DCA ) and SIP ( Systematic Investment Plan ) both is the tools by which you can invest fixed amount of money in regular intervals . they are different in different aspects. Visit our website click here
What is DCA ( Dollar Cost Averaging )
Regardless of the state of the market, DCA (Dollar Cost Averaging) involves investing where you can invest fixed amount of money in regular intervals. In other words, you will purchase more shares during periods of low price and fewer shares during periods of high price. Reducing the effect of market volatility on your investment results is the aim of DCA.
Benefits of Dollar Cost Averaging ( DCA )
~ Reduces Risk : it avoids lump-sum Investment and as it average the investment by buying at low and few high points.
~Reduce Price : An investor can increase returns by purchasing market securities while prices are falling. You will purchase more securities when you use the DCA technique than if you had bought them at a higher price.
~Mindful Saving : Regularly adding funds to an investment account promotes disciplined saving because the portfolio balance rises even when the current assets in the account are losing value.
~ Control your Emotional Investment : According to behavioral theory, emotional investing is a common phenomenon that is caused by a variety of reasons, including loss aversion and large lump sum investments. Emotional investing is eliminated or minimized when DCA is used. DCA VS SIP is depend on individual situation
Limitations Of Dollar Cost Averaging ( DCA)
~ Increase Expenses on Transaction : Investors who buy securities in small increments over an extended period of time are in loss point of paying high transaction expenses.
~Low predicted returns : High risk equals high rewards and low risk equals low returns is the straightforward theory of risk and return dynamics.
~ Complex : Monitoring every planned investment by DCA over a specified time horizon is a challenging operation, particularly if there is ultimately no cost difference as compared to a lump-sum investment.
2. What is SIP (Systematic Investment Plan )
SIP ( Systematic Investment Plan ) is a smart investment strategy where you can invest fixed amount of money in regular intervals in mutual fund.
Benefits Of SIP
~Small investments amount: You can begin investing in SIP with as little as Rs. 500 each month, as was previously suggested.
Limitations of SIP ( Systematic Investment Plan )
~ Doesn’t work for people who have irregular income : it requires to invest at regular intervals so you have regular cash flow for investing.
~ Absence of a clear exit strategy: SIPs lack a clear exit strategy. It is up to you when to make your escape.
~Duration: SIPs are known for providing strong returns over an extended length of time. If an investor chooses to invest in a SIP for a shorter period of time, rupee cost averaging may not have enough time to take effect, making the returns less appealing.
3. Difference Between DCA and SIP (DCA VS SIP)
~ DCA is for individual Securities Investment and In SIP money will be invested in mutual Fund.
~ IN DCA Investment can be choose to done at any time and In SIP time is predetermined.
~ Majorly SIP is done in India while DCA will be done in foreign countries.
Conclusion
Both the strategy are useful if they are treated with perfect knowledge and guidance.
For long-term investing, both DCA and SIP can be successful methods, but they have various advantages and disadvantages. If you have a large sum of money to invest, DCA might not be the ideal course of action. However, it can help you lessen the impact of market volatility on your investment returns. SIP may not be the ideal approach if you want to profit from market swings, but it can help you develop a long-term investment portfolio by allowing you to make regular small investments.
Both are for long term investment.
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This information is based on 100 % research . Please invest on your own risk and this page is only for education purpose.