Difference Between SIP and Mutual Fund

Dec 16th 2023
Mutual Fund

Difference Between SIP and Mutual Fund, Though terms like SIP and mutual funds correlate, there might be some differences between them that all mutual fund investors must be aware of. Since mutual funds are one of the most popular investment channels available today, investors need to know every aspect of this channel so as to get the best outcomes and easy management. There are different types of mutual funds available in the market today like Equity Linked Saving Scheme (ELSS), Systematic Withdrawal Plan (SWP), Lumpsum Investment, and others. The selection of a particular fund or scheme largely depends on the primary investment objective of the investors.

Why Invest in Mutual Funds?

Investing in mutual funds is a great idea as over the years, this kind of investment has shown amazing returns as compared to its counterparts. Moreover, there are several ways to invest in mutual funds that bring superior levels of flexibility to investors who can invest the amount at their convenience. Nonetheless, mutual funds come with easy liquidity which means an investor can choose to withdraw the entire value or a part of the same anytime during the investment. Now, let’s delve deeper and know the difference between SIP and Mutual Funds.

Read More: What Is SIP Calculator And It's Benefits In 2023

What is SIP?

Put simply, SIP refers to a Systematic Investment Plan and falls on the line of a mutual fund. Instead of investing in the form of a lump sum amount, an investor invests a fixed amount every month in his fund account. This is great for those who save smaller amounts every month and invest the same in the fund account.

SIP is a popular investment option because investors can leverage the benefits of compounding interest. In this type of investment, the interest accumulated on the principal amount is reinvested which results in higher maturity value.

One can start an SIP with an amount as low as Rs. 500 per month. Investors can choose from a plethora of mutual funds depending on their risk-bearing capacity. There are high-risk/high-return funds, medium-risk funds, and low-risk funds. Moreover, you can also choose funds that invest money in a particular stock market asset like equity, debt, hybrid, and others.

Read More: Top 5 Small Cap SIP Funds to Consider in 2023

What is a Mutual Fund?

A mutual fund can essentially be defined as a pool of money that is invested in stocks with the purpose of appreciation. The money in the pool is contributed by a large number of people who decide to invest in that mutual fund. Each mutual fund is managed by a fund manager whose responsibility is to decide where to invest the pooled money and in what way.

The returns on investments incurred in a mutual fund scheme are disbursed accordingly amongst all investors. The exact disbursement account is decided after the reduction of relevant taxes and other duties. This is commonly known as NAV or Net Asset Value. Mutual funds levy a minor charge against this benefit from the investors.

SEBI (Mutual Funds) Regulations 1996 specify that mutual funds in India are governed as trusts under the Indian Trust Act, 1882. All the applicable fees and other charges related to mutual fund investments are regulated by SEBI.

Read More: How Can I Withdraw Money From a Mutual Fund SIP Investment?

Difference Between SIP and Mutual Funds

Now, coming to our main topic which is understanding the differences between SIP and mutual funds, we have highlighted some major points through which you can easily know the difference between these two.

1. Investment Amount

In the case of SIP investment, a person can deposit a fixed amount every month or quarter repeatedly which is then added to his mutual fund account. In a mutual fund, investors deposit a lump sum amount in one go to get capital appreciation.

2. Charges

As mutual funds tend to carry a bigger investment value in comparison to SIP value, they leavy higher AMCs (Annual Maintenance Charges) and other charges, such as transaction costs.

The expenses related to the fund manager's fees and the transaction value are found to be on an upper side in the case of mutual funds as compared to SIPs, where the trade value and the investment value are always lower.

3. Market Volatility

When it comes to ascertaining the impact of market volatility on both SIP and mutual funds, SIP tends to face lesser impact of it as compared to mutual funds. This is because of the bigger investment value made by investor in mutual funds.

4. Redemption

Mutual funds are inherently known to have easy liquidity. However, one thing to note that mutual funds tend to have higher redemption charges as compared to SIP investments.


Which provides more profit – SIP or mutual fund?

Various studies indicate that mutual funds tend to provide better returns than SIP investments.

Which is safer – SIP or mutual funds?

The mutual fund in which SIP and lump sum investments are likewise similar, as is the portfolio exposure. Due to which, the same risks and volatility apply to both. On the other hand, the SIP investment option would assist you in averaging out market volatility when you invest long-term.

What is the lowest amount I can start a SIP with?

In most cases, an investor can start a SIP with an amount as low as Rs. 500 per month.

The Conclusion

A mutual fund is largely defined as an investment vehicle that gives investors tremendous exposure to stocks, bonds, and other financial instruments available in the stock markets. The same thing goes for SIP which is nothing but a way of investing in mutual funds. SIPs and mutual funds are two very separate concepts, so comparing them is like comparing sky and land. SIP is a way to invest in a mutual fund, whereas a mutual fund is a channel for investment.


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