Difference Between SIP and Mutual Fund

Edited by Diffzy | Updated on: July 04, 2023


Difference Between SIP and Mutual Fund

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Investing in the financial market has become popular as there are many options available to grow your wealth. It also becomes overwhelming, because there are plenty of options. And many people need to learn which way can give more significant returns. Some learn it from their friends and some get to know when things get popular in social media. In this article, we will talk one two popular avenues in which investors often get confused, .ie., SIP (Systematic Investment Plan) and Mutual funds. Both of them give good returns, so everyone needs to understand their differences and benefits.

Now, we will delve into the major difference between SIP and mutual funds.

SIP vs. Mutual Funds

Talking about SIPs and Mutual funds, the difference is minor. They have the same roots and very popular terms in the investment world. SIP is a method of investing in various stock instruments. Mutual funds are investment products or vehicles. In mutual funds, we invest our money and divide our money into various portfolios, stocks, or bonds. Whereas, SIP is a method to approach a particular investment product or vehicle. It is not limited to Mutual funds. It can be followed while purchasing stocks in a company, doing fixed deposits, or vice versa.

Let's talk about the difference between these SIPs and Mutual funds in tabular format.

Difference between SIP and Mutual Funds in Tabular Form

Parameters of ComparisonSIP (Systematic Investment Plan)Mutual Funds
Investment StructureIt demands regular investments in a fixed interval of time.It can be either a one-time or a lump sum amount.
DefinitionA disciplined and systematic approach to investing a regular amount in an investment vehicle.An investment vehicle that divides money into a diversified portfolio.
Investment disciplineIt works in the promotion of regular saving and investing.Relies on the decision of the investor's investment.
Investment ApproachIt is systematic and disciplined.It can be systematic or one-time.
Cost AveragingYesIt does not apply to it.
FlexibilityIt can be started with a small amount, as low as Rs 100.It can either start with large amounts or small amounts, depending upon the investors.
ConvenienceIt automated the investment process.It works on manual investor decisions.
The expense RatioVaries based on the investment vehicle.Varies

Now, we must also talk about the SIPs in great detail to have a better understanding of the investment world fundamentals.

What is SIP (Systematic Investment Plan)?

SIPs have gained popularity in the investment world. It is a very effective strategy that grows wealth in a systematic and disciplined approach. People from all over the world are following this technique to generate wealth. It has also been followed by big investors, which helped them to make great profits. If it can get great wealth to big investors over a long period, then it can get great wealth to you as well. Let's get deep into the study of SIP.

SIP is a method of investing a fixed amount in various investment vehicles, like Mutual Funds. Investors invest a fixed amount either monthly or quarterly. It helps an investor to build a disciplined way to invest over a long period.

Benefits of SIP

There are various benefits of doing SIP:

  • Rupee Cost Averaging- Through SIPS, investors can reduce the impact of short-term market fluctuations. They buy fewer units when the prices are high and more units when the prices are low. Due to this method, they average the cost per unit and increase their income.
  • Disciplined Investing- The most important goal behind SIP is to create discipline. This discipline helps investors to put in a fixed amount regularly. When investors get accustomed to investing by following a disciplined and systematic approach, they manage to keep a certain amount of money aside either every month or every quarter. Thus, it creates a systematic and disciplined approach to building wealth.
  • Power of compounding- And the most important of all is compounding. Through compounding, investors can grow money exponentially even by investing small amounts of money. Simply compounding works, investors reinvest the returns generated, which gives them more significant returns.
  • Flexibility- It provides flexibility to investors. If investors do not have enough money to start. They can start with as low as Rs 100. This helps investors to invest based on their financial capacity and nurtures their investment goals. And over time if you cannot invest more, you can also pause it. Or, you can also lower the amount you have been paying regularly.

How SIP Works?

It works in a very simple manner. When an investor opts for a SIP, they permit the Mutual Fund house to deduct a fixed amount of money at regular intervals from their bank account. Then this amount will be used to purchase units available in the mutual fund scheme.

Mutual fund houses are also known as the Asset Management company. This AMC finds out the units purchased for the investor's portfolio. And this represents the investor's ownership in the scheme. And it makes it very clear that the units purchased will be based on the amount invested and the net amount value during the time of investment. And as explained, as the investment increases units in their portfolio also increase.

Making the Most Out of SIP

It is explained in various points, like:

Start Early- The most important of all is time. Time is more significant than money. If you start early with investing then you will build more over a long time. And thus you will grow and benefit more from the power of compounding.

Choose the Right Mutual Fund- The next important thing that comes before starting SIP is the right mutual fund. Before choosing a particular mutual fund, you must look at its fund performance, expense ratio, and many other factors. We will discuss all these factors in detail while talking about the Mutual Funds.

Stay invested for the long term- Once you have chosen the right mutual fund and started investing regularly. The last thing that comes is to follow the systematic approach for a long period. If you are in the game for a long time then by the power of investing you can accumulate short-term market fluctuations. Thus, you can grow more money and achieve your financial goals.

Review and Adjust- An investor should monitor the chosen mutual fund's performance regularly. This helps to keep you track of your money and you can also make necessary adjustments if required.

Now, we will move on to the Mutual funds and talk about it in detail.

What are Mutual Funds?

In the world of investing, there are plenty of investment vehicles available. And one such popular type is Mutual Funds. Mutual funds have gained recent popularity, for giving good returns in a good amount of time. It is a very convenient and lenient form of investment. Let's explore mutual funds in detail.

These are investment vehicles that create a diversified portfolio for an investor. They pool the money from an investor and put it in various assets like securities, bonds, assets, or many other combinations. Mutual funds are managed by professional and skilled fund managers, who use their own experience to grow money for the investor. Under this scheme, investors require to invest money either through SIP or following a one-time investment. It provides a way for people new to the investment world, slowly making them accustomed to this world. It is simple as people need to choose the right mutual fund and invest money. And the rest of the thing will be done by the mutual funds if you have opted for the correct scheme.

Types of Mutual Funds

There are multiple types of mutual funds. And those are

Equity funds- Under this, professional fund managers invest the money in stocks or shares of companies. They aim for long-term capital generation. They participate in the growth potential stock market. Equity funds are divided into small-cap, large-cap, mid-cap, diversified funds, or sector-specific.

Debt funds- They deposit money in government bonds,  money market instruments, or corporate bonds. They aim to grow by investing in low risk fixed-income instruments. Generally, these funds are for people who wish not to take any risk and are happy with a stable return.

Balanced Funds (or hybrid funds)- These funds invest in both equities and fixed-income instruments. The value between equity and bonds can vary. It relies on the fund objective. It aims to create a balance between income generation and the value of money.

Index funds- They copy the performance of a specific market index. The portfolio of these funds lies in the constituents and weightings of the underlying index. They offer passive investment strategies and generate income in line with the market index.

Money market funds- These funds invest in short-term debt instruments. They provide stability for the money invested and give easy returns. It is generally the safest form of mutual funds. It works as a keeper of money for investors with surplus cash. They are very-low in risk and offer high liquidity.

Benefits of Mutual Funds

There are also many benefits of mutual funds, like-

Diversification- The first thing that comes to mind is diversification when you invest in a mutual fund. It divides your money into multiple securities. Through this diversified portfolio, fund managers can reduce the impact of bad performance and decrease the risk, which comes from an investment in a single place.

Professional management- Mutual funds are managed by professional fund managers, who are experienced and aware of the market. They conduct proper research and analysis to make investment decisions. Investors just require to invest money in a designated mutual fund and the rest of the work will be done by the fund managers.

Liquidity- Mutual funds offer liquidity. Investors are allowed to buy or sell their fund units on any business day at the current net asset value. This helps investors to plan their investments accordingly.

Affordability- Mutual funds are very affordable. Many funds can be started with small investments. This makes it accessible to everyone.

Flexibility- There are many types of mutual funds, which are designed to aim at particular goals. This helps the investors to choose a respective mutual fund by balancing the risk and financial goals. And it ensures that investors can find a mutual fund of their own choice.

Factors To Consider Before Investing In Mutual Funds

  • Investment objective- The investment objective must be clear in the minds of the investor. They must be aware of what they want out of this investment, whether it is capital appreciation or regular income.
  • Expense Ratio- It is the annual fees charged by the fund, to, manage your investment.
  • Fund performance- Research the performance of the fund. It can be analyzed by looking at their past returns. And you can also check it to understand their consistency on the market.
  • Risk tolerance- And the next comes, how much amount you can risk. Equity funds are more volatile, which means more risks. Whereas, debt funds are not that volatile, which means low risk.

Difference Between SIP and Mutual Funds in Points

  • SIPs are a method of investing in various investment vehicles, whereas the mutual fund is one type of investment vehicle, which can be approached through SIPs or one-time investments.
  • While investing through SIPs, its main focus lies in the systematic and disciplined approach of the investor. Whereas the main focus of mutual funds lies on the decision of the investors, whether in which form of mutual funds they want to invest.
  • Due to the rupee cost averaging, provided through SIP, they can reduce the short-term market volatility. Whereas, mutual funds primarily do not provide this type of service. Mutual funds can provide this service if an investor follows the SIP method.
  • SIPs rely on the power of compounding to grow wealth, whereas mutual funds emphasize the expertise of fund managers.
  • SIPs can reduce the risk of losing money, whereas Mutual funds do not reduce the risk. They simply have various types, which are recognized by their risk tolerance.


Both SIPs and Mutual funds aim to generate wealth for the investor in the financial market. SIPs offer a systematic and disciplined approach, which portrays less risk to the investor. On the other hand, Mutual funds provide professional fund management for the investor. Thus, by understanding the avenues like SIP and Mutual funds, investors can take necessary decisions, based on their financial goals, risk management, and flexibility.


  • What is the Difference Between SIP and Mutual Fund? (groww.in)
  • What Is The Difference Between Mutual Fund And SIP? (etmoney.com)


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"Difference Between SIP and Mutual Fund." Diffzy.com, 2024. Sun. 19 May. 2024. <https://www.diffzy.com/article/difference-between-sip-and-mutual-fund>.

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