SIP vs Mutual Fund: Difference and Comparison

SIP and Mutual Funds may sound similar, but they are not the same thing. Most users are puzzled by these terms and struggle to distinguish between SIP and mutual funds. This is not the case because SIP is a subset of the broader concept of mutual funds. Let us go over both in-depth to get a better picture.

Key Takeaways

  1. SIP, or Systematic Investment Plan, allows investors to regularly contribute a fixed amount to a mutual fund, promoting disciplined saving and cost averaging.
  2. Mutual funds pool money from various investors to invest in diversified assets like stocks, bonds, and other securities.
  3. SIP facilitates investment in mutual funds, reducing the impact of market volatility and helping investors benefit from compounding over time.
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SIP vs Mutual Fund

SIP is a type of investment strategy used by individuals to invest small amounts of money in a particular financial instrument over a period of time and take advantage of the power of compounding. Mutual funds are a diversified portfolio of stocks, bonds, and other securities managed by professional fund managers.

SIP promotes investing discipline by requiring investors to deposit tiny but consistent amounts into a specified program over time. One can select the frequency of investing here, such as daily, weekly, monthly or yearly, and adhere to it religiously in order to establish a corpus. SIP promotes investing discipline by requiring investors to deposit tiny but consistent amounts in a specified program over time.

MUTUAL FUNDS allow you to combine your money with other investors and purchase stocks, bonds, and other investments “mutually.”
Mutual funds invest in a wide range of assets, and performance is measured as the change in the fund’s total market value, which is determined by aggregating the profitability of the underlying assets.

Comparison Table

Parameter of ComparisonSIPMutual Fund
FlexibilityHighly adaptableLower adaptable
Investment WayAt regular timesone-time expense
ChargeLess because of the average cost.High because it’s a single transaction and the investment
RiskFewer consequencesGreater influence
Higher ProfitsMore beneficialLess beneficial

What is SIP?

A systematic investment plan (SIP) is a way for investors to invest in mutual funds where they make periodic, automatic payments on a regular basis. You can plan your investments with SIPs to meet your long-term financial objectives. You can achieve this by choosing a mutual fund scheme and deciding on the target amount and the amount you’d like to invest at regular intervals.

SIP encourages discipline in investing by requiring the client to make slow, regular contributions to a program of their choice. In order to develop a corpus, one can select the frequency of investment from daily, weekly, monthly, fortnightly, or yearly. The investor’s bank account is automatically debited after selecting a frequency and date for the transaction.

Using postdated checks or the ECS feature, an investor can invest a predetermined fixed amount in a scheme every month or every three months, depending on his availability. Investors must complete an application form and a SIP mandate form, both of which ask them to select a SIP date.
Subsequent SIPs will be automatically charged by standing order or post-dated checks. The Mutual Fund or the Registrar & Transfer Agent’s closest service centre are both acceptable places to deliver the documents and checks. The money is invested in the closing Net Asset Value on the day the check is cashed.


What is Mutual Fund?

A mutual fund is a collection of assets put together by an asset management firm (AMC), where investors can acquire ownership of units in proportion to their investments. The investor can invest in equity funds, debt funds, hybrid funds, etc. They make their decision based on their ability to accept risk as well as their unique financial objectives.

Mutual funds provide getting professional portfolio management of stocks, bonds, and other securities to small or individual investors. Each participant thus receives a considerable proportion of the fund’s gains or losses. The success of mutual funds, which invest in a huge variety of assets, is measured as the change in the fund’s total market capitalization, which is calculated by aggregating the performance of the underlying investments.

Mutual fund investments can be made either in a flat payment or over time (SIP). A lump sum is an investment made only once, whereas a SIP is a series of investments where you can make a fixed amount at regular intervals over a certain length of time.

The current NAV of a mutual fund, which doesn’t change during market hours but is settled at the conclusion of each trading day, is normally the price at which shares of the fund can be bought or redeemed.

mutual funds

Main Differences Between SIP and Mutual Fund

  1. With SIP investing, you have more freedom because you can make small, frequent investments on a weekly or monthly basis, depending on your convenience. You can invest in mutual funds with SIPs without changing your current routine or spending habits.
  2. When investing through a SIP, you make recurring contributions to buy mutual fund units. This fosters the behaviour of routine investing.
  3. Regularly making disciplined investments, SIP investor gradually increases their wealth. Reinvested returns or earnings are available to investors who use mutual funds.
  4. Cost averaging is advantageous for SIP investments, by purchasing more units when the market is weak and fewer units when the market is strong, you can reduce the overall cost of your transaction. In Mutual Funds, since you do not receive the benefit of the average, you wind up acquiring all the units for a price that may be greater.
  5. There is always the issue of timing the purchase and subsequent exposure to high volatility times if you invest in a lump payment. With a SIP, the investment is spread out over time, so only a portion of it will experience greater market volatility than typical.

Last Updated : 27 July, 2023

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