Difference Between SIP and Mutual Fund

Difference between SIP and Mutual Fund

The main difference between SIP and Mutual Fund is that SIP is a way to invest in mutual funds and it allows you to invest consistently over time and build a corpus to support a variety of financial objectives whereas mutual funds are an investment product or instrument. 

Here are some of the biggest differences between SIP and Mutual Fund

Factors Lump sum Mutual fund SIP
Mode of investment One time investment or lump sum Investment in mutual funds can be done by investing a considerable amount of money at once. SIP allows investors to invest a fixed amount of money in fixed intervals. 
Cost associated The cost associated is high as the investment is done one time. The cost associated is low because of the rupee cost averaging. 
Volatility Investments may get highly impacted during volatilityInvestment get less affected during volatility 
Flexibility Less flexible More flexible 

This article covers: 

What is SIP in Mutual funds?

A SIP (Systematic Investment Plan) is a way to invest in a mutual fund scheme where an investor can choose the SIP amount and invest monthly or quarterly. SIP is a convenient and hassle-free method of investing as it allows the investor to invest from as little as Rs. 500.

By investing a fixed amount at regular intervals, the investor can benefit from the power of compounding. As the investment is made over a period of time, it helps the investor to reduce the impact of market volatility on the investment returns. Hence, SIP is an excellent tool for long-term wealth creation through mutual fund investments.

Lets understand with an example, let’s say a person started a SIP of Rs. 5000 in index mutual funds for 20 years, assuming the expected return per annum is 12%. After the maturity, he will receive an estimated interest of Rs. 37,95,740 on the total invested amount of Rs. 12,00,000. Hence, his total value becomes Rs. 49,95,740. 

What is Mutual Fund?

A mutual fund is an investment vehicle that collects money from many individual investors who share similar financial goals. The money is then invested into various types of assets such as stocks, bonds, commodities, and more depending on the specific fund’s objectives. Each investor owns units in the fund which represent ownership in all the underlying assets held within it. 

Investing in a mutual fund helps you to get instant diversification across multiple asset classes without having to purchase each one individually. This helps reduce risk by spreading out your investments among different sectors and industries. For example, if one sector performs poorly it won’t have too much impact on your overall portfolio performance.

SIP Vs Mutual fund

The primary difference between SIP and mutual fund is that SIP is a method of investing in mutual funds through regular, fixed investments, while mutual funds involve one-time investments in a diversified portfolio of securities. More difference between SIP and mutual funds are given below: 

Worth of Investment

  • SIP is a great way to gradually increase your investment value over the long run. On the other hand, mutual funds also help you increase your wealth. It mainly depends on the mode of investment you have chosen, which is SIP and lump sum. 

Investment Vehicle

  • Investment through SIP can be done in fixed amounts on a monthly or quarterly basis. The amount of investment and the frequency of investment is chosen by the investor. 
  • On the other hand, investment in mutual funds through lump sum can be done by investing large sums of money at once. 

Market Fluctuations

  • SIPs can help investors to reduce the impact of market fluctuations on their investments. Since investors are investing a fixed amount at regular intervals, they can benefit from the concept of Rupee Cost Averaging. This means that when the markets are high, the investor will buy fewer units of the mutual fund, and when the markets are low, the investor will buy more units of the mutual fund. Over time, this can help in averaging out the cost of investment and reduce the impact of market fluctuations.
  • Mutual funds are also subject to market volatility, as they invest in a diversified portfolio of stocks, bonds, or other assets that are influenced by market fluctuations. 

Fees

  • The fees involved with SIP and mutual funds vary depending on the type of plan selected and the provider chosen. There are entry fees, exit fees, expense ratios, management expenses, and other miscellaneous charges associated with these investments that can add up over time.

Withdrawal Process

  • The withdrawal process of SIP and mutual funds is a relatively simple one. Investors have to place withdrawal requests to redeem their units, which will then be processed by the fund house. After this, they can receive payment through bank transfer depending on what was specified at the time of purchase. 
  • Withdrawal requests are usually processed within two working days. Also, investors are able to track progress online. This makes it easy for them to know when their money should arrive and how much they have received back from their investments. Hence, investing in a mutual fund is highly liquidated. 

You can invest in Mutual Fund SIP through Alice blue at no extra cost.

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Difference between SIP and Mutual Fund- Quick Summary

  • SIP is a way to invest in mutual funds that allows investors to invest a fixed amount of money at regular intervals, while mutual funds are an investment product that collects money from many individual investors and invests in various types of assets.
  • SIP is a more disciplined and convenient way of investing and can help reduce the impact of market volatility on investment returns.
  • Mutual funds provide instant diversification across multiple asset classes and can help reduce risk by spreading investments among different sectors and industries.
  • Both SIP and mutual funds are subject to market fluctuations, but SIPs can help in averaging out returns while mutual funds can offer higher returns based on the fund’s performance.
  • The charges involved with SIP and mutual funds vary depending on the type of plan selected and the provider chosen.
  • The redemption process for both SIP and mutual funds is relatively simple, and investing in a mutual fund is highly liquid.

Difference between SIP and Mutual Fund- Frequently Asked Questions

1. What is the Difference Between SIP and mutual fund?

A mutual fund is a type of investment vehicle that pools money from multiple investors to invest in various assets, while SIP (Systematic Investment Plan) is a method of investing in mutual funds where investors invest a fixed amount at regular intervals.

2. Is SIP Safer Than Mutual Fund?

SIP is a way of investing in mutual funds, not a separate investment option. Both SIP and mutual funds carry some level of risk, as they are subject to market volatility and the performance of the underlying securities. 

3. Which is Better SIP or Onetime?

If you do not have much knowledge of the stock market and don’t have time to track the market, then you should invest through SIP as it allows you to follow discipline investing. On the other hand, if you have more risk appetite and have knowledge about the stock market, then you can opt for one time investment. 

4. Does SIP Always Give Profit?

SIP may not always give profit. The profit is determined by various factors such as the type of fund you are investing in. However, if you invest in the equity mutual fund through SIP for the long term you can earn a 10-15% return.  

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