Mutual Funds vs SIP: What Are the Differences?

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Mutual Funds vs SIP: What Are the Differences?

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Have you ever thought about investing in the markets? If so, I’m sure you’ve pondered the difference between SIP and mutual fund offerings. I was initially confused about how the two differed from one another. Owing to this fact, once I got the answers I was looking for, I compiled this information into what I hope is a helpful guide for those new to the markets.

A simple fact to bear in mind, though, is that a Systematic Investment Plan (or SIP) merely serves as a method via which you can invest in a mutual fund. It isn’t a product. Continue reading to understand mutual fund and SIP differences.

Defining a Mutual Fund

A mutual fund amasses a pool of money via its investors. This pool of money gets directed towards certain securities so that the fund’s investors can achieve a common objective. Securities that mutual funds most frequently invest in include money market instruments, bonds, and equity. Often a mutual fund’s portfolio is either made up of bonds, stocks or a combination of the two. 

Mutual funds are professionally managed under the supervision of Asset Management Companies (AMC). Each investor’s participation in a fund is linked to the number of units they hold. Investors get access to a professionally managed and diversified portfolio for an affordable price by investing in such a fund. Funds are classified in accordance with the securities they invest in, the returns they seek and the investment objectives they are linked to. 

Mutual funds can be invested via lumpsum payments. This, however, requires an investor to have significant cash in hand. Instead of a lumpsum amount, an investor can purchase all the units they set their sight on in a single transaction. 

For instance, if you wish to invest INR 15,000 in a single mutual fund scheme, you must make a one-time payment of this amount to finish the investment amount plan. Should lump sum investments in mutual funds not work for you, SIPs are worth considering. The next section helps make clear the SIP vs lumpsum mutual fund difference.

Understanding a Systematic Investment Plan

Also known by the acronym SIP, this plan provides investors with an alternate route to invest in mutual funds. SIPs allow investors to invest small amounts regularly in a mutual fund to build a good corpus over an extended period.

For instance, you can set up a SIP if you want to invest INR 15,000 in a mutual fund but want to make this investment across 15 months. You can invest INR 1000 monthly to purchase units as you move forward. Also, with Fi Money, it’s very easy to set up SIPs & invest in a mutual fund of your choice.

By regularising fixed contributions — be it weekly, monthly, or quarterly — investors are taught to be disciplined with their savings. With SIPs, you can invest in instalments while continuing to manage your monthly income and expenses. This mutual fund investment method contrasts with lumpsum investments directed toward them.

Now you know the investment routes for an investment in a mutual fund - lumpsum vs SIP. Next, let's consider the differences between the two. 

Mutual Funds vs SIP

Examine the table below in order to understand the differences between mutual funds and SIPs.

Area of Consideration

Mutual Funds 

Systematic Investment Plans 

Investment Mode

Here, an investor must make a lump sum payment to purchase all of their mutual fund units in one go.

Under a SIP, an investor must make regular payments on a monthly or quarterly basis to purchase units of a mutual fund.

Market Volatility

The investment value of direct mutual fund investments is greater than that of a SIP, resulting in market volatility having a bigger impact on lump sum investments. 

Since SIP investments are smaller, the ever-changing market trends have less of an impact on SIP investments in comparison to lumpsum mutual fund investments. 

Charges

Annual maintenance charges, along with other fees, are greater under mutual funds than SIPs as the invested amount is greater under a mutual fund. 


The fund manager’s fees and the transaction value are also greater here. 

Annual maintenance charges, along with other fees, are comparatively less under SIPs than mutual funds as the invested amount is lesser.

The investment value, along with the trade value, is lower under SIPs. 

Redemption

Redemption charges are more expensive under a mutual fund.

Redemption charges are less expensive under a SIP.

Final Thoughts

Although the table above highlights the differences that exist between systematic investment plans and mutual funds, you must remember that these are two completely different concepts. While a mutual fund can be thought of as an investment option, a SIP must be understood as a method via which to invest in a mutual fund.

Learn more about the markets, understand whether mutual funds are appropriate for you and, if so, whether lumpsum investments or SIPs are the right methods of investing for you on the Fi app. Investing early on and with frequency is important. That said, you must always only invest as much as you can, keeping in mind your investment goals and threshold for risk. 

Frequently Asked Questions:

Q1. Does SIP mean mutual funds?

A1. While you might think of SIPs when you hear mutual funds, SIP doesn't refer to these funds. Instead, it refers to an avenue via which it is possible to invest in them. 

Q2. Which is better, SIP or mutual funds?

A2. Whether or not a systematic investment plan or mutual fund is superior depends upon your investor profile. If you have ample cash, investing in mutual funds directly via a lumpsum payment might be your best option. Otherwise, making small but frequent investments in a mutual fund via a SIP may be your best bet if you want to invest in a mutual fund but don't have ample money. 

Q3. Which SIP is best for 3 years?

 A3. As of 2022, the best SIP plans to hold for 3 years are as follows.

Fund Name

Investment Required Each month

1 Year Return

3 Year Return

Motilal Oswal Focused 25 Fund

INR 5000

40.77%

20.01%

Kotak Standard Multicap Fund

INR 5000

48.94%

14.15%

ICICI Prudential Bluechip Fund

INR 5000

59.24%

19.41%

HDFC Balance Advantage Fund

INR 5000

55.65%

14.39%

Franklin India Focused Equity Fund

INR 5000

80.39%

22.68%

DSP Equity Fund

INR 5000

31.90%

14.69%

Axis Focused 25 Fund

INR 5000

61.91%

20.94%

Axis Bluechip Fund

INR 5000

52.52%

20.79%

 Q4. What is a mutual fund?

A4. Mutual fund refers to a scheme where a group of investors pools money. This money is then directed towards certain securities so that the fund’s investors can achieve a common objective. Securities that mutual funds most frequently invest in include money market instruments, bonds, and equity

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