What is the Difference Between SIP and Mutual Fund?

Our lives now involve a great deal of online learning and investing. This can oftentimes be confusing as most of the terms used may sound like technical jargon. Terms like ‘SIP’ and ‘Mutual Funds’ often can confuse novice investors. This has led to people pondering questions like “mutual fund vs SIP, which is better.” In this article, we will take a closer look at what the two terms mean and the difference between SIP and mutual funds. Keep reading to find out!

What is a Mutual Fund?

A mutual fund is an investment vehicle that pools money from many investors to invest it in various investment securities such as company stocks, bonds, commodities, etc. These mutual funds are managed by a fund manager who is experienced in managing stock market investments.  

Mutual funds have become popular investments as they provide professional management and reduce risk by diversifying investments across various financial assets, industries, etc. These investments are driven by the goals of the fund which are set beforehand. 

Mutual funds may be set up for retirement planning, to serve as tax-saving vehicles or even track an index.

What is a Systematic Investment Plan (SIP)?

SIP stands for a Systematic Investment Plan and is a disciplined approach to investing in mutual funds. An SIP allows you to invest a fixed amount of money into a mutual fund scheme at regular intervals, such as monthly, yearly, etc. This makes investing convenient for investors while ensuring that they remain disciplined.

An SIP allows investors to consistently invest small chunks into mutual funds which over time turn into sizeable investments thanks to the compounding effect of instruments in the stock market. This also allows investors to average out their investments by maintaining consistency and discipline through market highs and lows which effectively beats volatility.

Difference Between SIP and Mutual Fund

SIP vs Mutual Fund: Key Differences Explained

Now that you have understood what mutual funds and SIPs are, let’s look closely at some of their most important differences.  

Concept

Understanding the difference between SIP and mutual fund is crucial for effective investing. While mutual funds are investment vehicles that pool money from many investors to further invest in the financial markets, SIP is a method to regularly invest a fixed amount into mutual funds.
A mutual fund here is the investment and SIP here is the approach that helps you invest consistently into them.   

Investment Strategies 

In the case of mutual funds, the overall investment strategy is outlined beforehand in its prospectus. This will include the goals of the mutual fund and the investments the fund can make. The funds’ strategic investment decisions to buy or sell investments are taken by the fund manager. 

On the other hand, an SIP can form part of your personal investment strategy to invest in mutual funds in a disciplined manner. This allows you to invest consistently without worrying about the market conditions.

Frequency

A mutual fund investment typically takes place through a single transaction, where an individual invests a specific amount at one time. In contrast, a Systematic Investment Plan (SIP) allows investors to contribute fixed amounts at regular intervals, such as every month. 

Flexibility

In a Mutual Fund, you can not adjust the amount later once you invest. But in SIP you can adjust the amount you want to invest over time. 

Volatility Risk

Mutual Funds are more prone to market volatility risk thus timing the market became crucial. In contrast, SIP spreads investments across market conditions thus mitigating market volatility risk.

Mutual Fund vs SIP: Which is Better for You?

SIP (Systematic Investment Plan) involves investing a fixed amount regularly, which helps spread the investment over time and reduces the impact of market fluctuations. It’s suitable for investors who prefer a disciplined approach, especially for long-term goals, and those who want to invest small amounts over time. In contrast, lump-sum mutual fund investments involve investing a large amount at once, which may offer higher returns if the market performs well. However, it also carries the risk of market timing, as investments are exposed to market conditions at the time of investment. Both approaches have their benefits depending on the investor's financial goals, risk tolerance, and market outlook.

How to Invest in SIP and Mutual Funds with Rupeezy?

To invest in any Mutual Funds in India, you need to have a KYC-verified Demat account or have your KYC updated in KRA records.

KRA (KYC Registration Agency) is a SEBI-registered entity that manages and maintains KYC records for mutual fund customers centrally.

Follow the Steps Below to invest in SIP and Mutual Funds with Rupeezy. 

• Step 1: Download the Rupeezy app from the Google Play Store or the iPhone App Store.

• Step 2: Open the app and register using your mobile number.

• Step 3: You will be redirected to the KYC (Know Your Customer) page, where you need to complete your verification by providing the required details, such as your PAN and Aadhaar numbers.

• Step 4: After completing the verification, you will receive a client code and be prompted to set a password.

• Step 5: Once these steps are completed, you can log in to the app, navigate to the investment section, and choose the funds you would like to invest in.

• Step 6: Finally, you can select either a One-Time investment or a Systematic Investment Plan (SIP) based on your preference.

Conclusion

Understanding the difference between SIP and mutual funds helps investors understand the difference between an investment and an approach to investing. This allows investors to get a better understanding of how the investment world works which will then help them plan their financial future better. People need to consider their budget, financial goals, investment duration, and other factors to choose the best option among mutual funds and SIPs.

FAQs 

Q. Which is better, SIP or mutual fund?

The choice between SIP and Mutual fund investment depends on your goals and risk tolerance. SIP involves regular investments with mitigating market timing risk, while lump-sum investments offer the potential for higher returns but with more market timing risk.

Q. Can I withdraw SIP anytime?

Yes, you can withdraw or Redeem SIP anytime. However, if you withdraw or Redeem your SIP on a non-working day you will get your withdrawal on the next working day.

Q. Which is more risky SIP or mutual funds?

SIP spreads the investment through market conditions mitigating the market timing risk. However, in the case of Mutual Fund Lumpsum, it is crucial to time the market otherwise you may risk losing your investment value if the market dips further after your investment.