SIP vs Mutual Funds - What Is The Difference Between SIP & Mutual Fund

Manish Kothari
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Manish Kothari


In today’s era where investing has become a necessity, most of the investors out there consider mutual funds as the best possible alternative to park their sum. But, many investors have a similar kind of query from every advisor, which is “what is the difference between Mutual funds and SIP (Systematic Investment Plan)?”. 
What is important here to understand that these two things are not different. Mutual Fund is an investment alternative and SIP is a concept that assists in investing. In simpler words, SIP can be considered as a way to invest in mutual funds. Another way to invest in mutual funds is a lump-sum method, where an investor parks his surplus in a particular fund in one go or one installment. 
In this article, we will discuss mutual funds and methods of investing in them. 


Mutual funds are investment alternatives that pool funds from many individuals, put them together, and purchase a collection of bonds, stocks, or other securities as per the investment objective of the scheme. This is usually termed as a portfolio. The NAV(Net Asset Value) of the mutual fund, also called its per-unit price, is ascertained by the total value of the securities in the portfolio divided by the fund’s outstanding stocks. Based on the value of securities at the end of each trading day, the NAV of the scheme fluctuates. It is significant to remember that investors do not own the securities in which the fund invests, they are owners of the units in the fund itself. 
When we talk about actively managed mutual funds, the decision and authority to buy & sell the underlying securities are made by fund managers which are supported through research. The primary goal of these managers is to seek out investment opportunities that can help the fund to surpass the returns of its benchmark which generally is the index, such as Sensex or Nifty. A simple way to tell the fund’s performance is to compare it with the set benchmark.


SIP i.e. Systematic Investment Plan is not an investment alternative or asset class. It is rather a concept and one of the methods in investing in mutual funds as we discussed in the introduction. Thus, SIP can be termed as an investment in MFs periodically with a certain amount of money in a disciplined manner. This allows an investor the flexibility to invest according to one’s financial goals and create long-term wealth by investing a small sum through a long tenure. Investors having regular cash flow or fixed income can go forward with a SIP. Also, SIP is the best alternative to get into the habit of saving & investing regularly. Moreover, the benefits of compounding can do wonders in the long run. It also helps to avoid timing the market and is least affected by the market volatility on long-term investments due to its benefit of rupee cost averaging. 

Also Read: Know Best Time to Start an SIP


Lump-sum is a one-time investment concept where an investor can invest his/her entire funds in one go. All one needs is the entire fund in hand. One complexity involved in this concept while investing in market-linked funds is that an investor looks after the perfect time to enter the market which is not feasible as timing the market is impossible. If an investor opts for a stable debt fund then this complexity doesn’t arise. Investments can be chosen as per the risk profile, return expectations & investment horizon of the investor. Thus, an investor should always do the needful research and analyze the feasibility of both the options i.e. Lump sum and SIP. Going forward with the option which best suits the position and feasibility of the investor is an ideal choice.  


1. Power of Compounding:

Compounding is often called the eighth wonder of the world because of its power as an investor can accumulate great wealth over a period of time while investing on a regular basis. If an investor keeps on contributing towards a fund or even stops contributing but keeps the sum invested, he can reap amazing returns because of compounding.

2. Rupee Cost Averaging:

Investing through SIP allows investors to invest across market ups and downs. The contribution is made at different periods across different market levels. When the market is bearish, the portfolio valuation diminishes, thereby the investors are allotted a higher number of units per investment. Identically, when the market is bullish, investors are allotted fewer units. 

3. Discipline:

With SIP, investments are automatically deducted from the investor’s bank account and made in the specified certain MF schemes. Therefore, inculcating a sense of financial discipline as the contributions are continued irrespective of market volatility. 

4. Flexible:

SIP posses higher flexibility as here an investor can invest small amounts at regular periodic intervals as per one’s feasibility and convenience. Hence SIP is an ideal alternative for individuals having regular cash flows and fixed salaried people.


1. Which is better, SIP or Lump-sum?

It all comes down to the investor and his feasibility. Both the options have their own benefits and suitability. So, the investors can look into investing in MF schemes as per their needs & requirements.

2. Is SIP an investment alternative?

SIP can not be considered as an investment alternative, it is rather a method or way of investing in mutual funds.

3. What is the advantage of SIP?

Here are some of the key advantage of SIP:

  1. Rupee cost averaging
  2. Flexibility
  3. Compounding
  4. Discipline and phased investing
  5. How much money is required to invest in SIP?

SIP can be done with a very nominal amount per month. Some funds have set it at as low as Rs. 100 while many have set it as Rs. 500. The minimum SIP amount varies across schemes.

4. How much time is required to reap maximum benefits from SIP in equity mutual funds?

It is always recommended to invest for the long term while investing through SIP in equity mutual funds. 

More Information:

Best Large Cap Mutual Funds to Invest in India
Best Small Cap Mutual Funds to Invest in India
Best Multi Cap Mutual Funds to Invest in India
Section 80D - Deductions, Tax Benefits, Claim Amount, Example
How to Invest in Mutual Funds in India?
Difference Between Direct And Regular Mutual Funds
Index Funds - Meaning, Purpose, How to Work, Risk, Returns
Cost Inflation Index (CII Index) - Meaning, Calculation, Chart & Example
Fixed Deposit vs Mutual Fund: Risk, Returns, Tax Benefits, Comparison, Which is Better

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