What is the difference between SIP and Mutual Fund?

“Hey Riya, I’ve been thinking about starting my investment journey,” said Mehak, sipping her cup of hot coffee. “But there’s something which is confusing me a lot i.e. are SIPs the same as Mutual Funds? Or are they two different things?”

Riya (who invests in SIP) Mehak’s friend, said, “Oh, I had the same question when I started! However, let me simplify it for you. Let me explain you mutual fund and sip difference.”

Let’s first understand what mutual funds & SIPs are individually,

What Are Mutual Funds?

A Mutual Fund pools money from various investors and puts these funds into different assets such as equity, debt, gold, etc., depending on the specific scheme chosen by the investor. It is professionally managed and monitored by a fund manager with aim to generate returns for the investors. 

Types of Mutual Funds

Here’s a brief explanation of all the types of mutual funds:-

Equity Mutual Funds:

These mutual funds invest the pooled money from investors primarily in stocks of different companies. Suitable for long-term goals, as they are volatile in the short term but aim to deliver inflation-beating returns in the long term.

Debt Mutual Funds:

Debt funds tend to invest in fixed-income instruments such as corporate and government bonds and money market instruments. These are suitable for your short-term goal (less than 3 years) and are an essential part of the overall asset allocation of the investor adding stability to the portfolio.

Gold Mutual Funds:

Gold Mutual Funds are mutual funds that invest in gold and different gold-related assets including Gold ETFs on your behalf. Gold acts as a hedge against inflation and market volatility.

Hybrid Mutual Funds:

Hybrid mutual funds are a type of mutual fund that combines both equity (stocks) and debt (bonds) in one portfolio. This mix gives you a balance of high growth potential (from equity) and stability (from debt). 

You can check out expert-curated, well-researched equity, debt, gold, and hybrid funds on the Lxme app.

What Is a SIP?

On the other hand, SIP means Systematic Investment Plan , it’s a way of investing in Mutual Funds. It allows you to invest a fixed amount in a Mutual Fund regularly i.e. monthly. A SIP is not a different product than mutual funds, nor is it a Mutual Fund’s category. It is a way of investing in mutual funds in a disciplined manner. This method automates your investment, making it consistent and convenient. Every month set amount of will get deducted from your bank account and it will get invested in the chosen mutual fund scheme.

What are the different ways of investing in Mutual Funds?

There are 2 ways of investing in a mutual fund:  SIP (Monthly Investment) & Lump sum (One-time investment).

SIP vs. Lumpsum Investment:

Parameters	SIP	Lumpsum
Meaning	A method of investing in mutual funds in periodic intervals.	A method of investing in mutual funds where you invest in one go.
Amount	You can begin investing with as little as ₹ 100, however, it changes depending on the mutual fund scheme you choose.	You can start investing with ₹ 100, however, it changes depending on the mutual fund scheme you choose.
Timing	As investments are made in regular intervals, there is no need to time the market.	Little timing of the market is required as you’ll be investing money in one go.
Cost of investment	You can get the benefit of cost-averaging. I.e. While investing periodically you can buy more units when markets are down with the same amount of money.	Higher or Lower depending upon the market situation
Money Management	It helps in encouraging savings and developing financial discipline.	It helps in preventing unnecessary spending.

So how are they different?

The Key Differences Between Mutual Funds and SIP

Let us find out the difference between SIP and mutual fund in detail here-

Investment Amount

• Mutual Funds: Investments are typically made in one lump sum, requiring a larger upfront amount.
• SIP (Systematic Investment Plan): Investments are made in smaller, recurring amounts—usually monthly or quarterly—making it more affordable.

Investment Type

• Mutual Funds: Can include equity funds, debt funds, hybrid funds, or a combination of financial instruments like stocks and bonds.
• SIP: Is a method of gradually investing in mutual funds over time, spreading your contributions across market cycles.

Impact of Market Volatility

• Mutual Funds: The entire investment is exposed to market conditions, making it more sensitive to market fluctuations.
• SIP: Since investments are spread over time, SIPs average out market highs and lows, reducing the impact of volatility.

Charges and Fees

• Mutual Funds: Larger investments often result in higher charges, including fund manager fees and transaction costs.
• SIP: Smaller, periodic investments usually mean lower transaction costs, making it a cost-efficient method.

Redemption

• Both Mutual Funds and SIPs: Are highly liquid, allowing you to redeem your investment when needed.
• Key Difference: Mutual fund redemptions may have higher associated charges compared to SIPs, where costs tend to be lower.

So, a mutual fund serves as an investment vehicle, offering diversification across various asset classes like stocks and bonds. A SIP, on the other hand, is a methodical approach to investing in mutual funds over time. While both options have their merits, SIPs often stand out for their ability to manage market volatility, promote financial discipline, and make investing accessible with smaller contributions.

If you’re wondering why SIPs might be a better fit for your financial goals compared to lump sum investments, let’s explore the key benefits of SIPs and how they can help you build wealth more efficiently.

Benefits of SIP Over Lump-Sum Investment

Rupee Cost Averaging:

SIPs help you buy more units when markets are low and fewer units when they’re high, averaging your cost of investing.

Disciplined Investment:

SIPs help you become a disciplined investor as every month automatically your money gets invested.

Low Entry Level:

To invest in SIPs, you don’t need a large sum of money. That is, you can start investing with just ₹100.

You can check out the Lxme app- investment for women for Rs.100 funds which are well-researched and curated by experts.

Power of Compounding:

Regular investments over time allow your returns to earn further returns, amplifying your wealth and compound over time. For example: If you start Rs.2,000 SIP for 10 years at 14% p.a. Rate of return then after 10 years (total investment: Rs.2.40 Lakh) the value of your investment will be Rs.5.24 Lakh.

If you also want to calculate and know how much you can build through your SIP investment, you can check out our SIP Calculator here for an easy calculation.

No need to time the Market:

Investing in SIPs regularly allows you to take advantage of Market Volatility, as you are investing during different phases of the market, removing the need to time the market.

Mehak smiled, finally understanding the mutual fund and SIP difference. “So, SIP is just a method to invest in Mutual Funds, right?” Riya says. “Exactly! SIPs make the journey smoother and more consistent, which is why it’s a great option when it comes to investment for women.”

If you’re like Mehak and ready to embark on your investment journey, Lxme makes it simple. With Lxme’s expert-curated time and goal based portfolios, starting an SIP is as effortless as sipping your favorite cup of coffee.

FAQs

Also Read,

• Difference Between Regular and Direct Mutual Funds
• How to Withdraw only Profit from Mutual Funds
• Mutual Funds vs Stocks