Present days Sip and mutual fund are very famous these days. Currently, everyone knows about the sip and mutual fund but rarely knows about the difference between them. In this article, we will discuss in detail the difference between Sip and mutual funds. In this digital era, everyone knows about the stock market. A mutual fund is the easiest way to invest in the stock market.
Table of Contents
SIP vs Mutual fund
| Sr.no | Parameters | SIP | Mutual Fund (Lump sum mutual fund) |
| 1 | Definition | A systematic investment plan is a way to invest in mutual funds. | A mutual fund is a simple way to invest in the stock market. |
| 2 | Rupee Average costing | When investors invest in the sip, investors enjoy the benefits of a bearish market. | The lump-sum method does not provide rupee average costing benefits. In this method, all the units are allotted in the beginning at the same price for the entire period of the investment.
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| 3 | Flexibility | When investors invest by the sip, it allows flexibility to the investor with very small instalment which just starts from 500 INR periodically | lump sum is only suitable for the rich and the people who have a surplus amount of money. Lump-sum investment is only possible above 5000INR. So, it is not possible for all the investors.
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| 4 | Cost | The overall cost is less due to rupee average costing. | The overall cost is high due to a one-time investment. |
| 5 | convenience | More convenience | Less convenience. |
| 6 | stoppage | Available at a penalty and exit load. | Not available. |
| 7 | volatility | In sip investment done in the instalments for the entire period of the investment in this manner, it reduces the uncertainties rises from the volatility of the market | In a lump-sum system, investors need to find the correct time to invest by which they can get more units of the mutual fund. So, this method is very risky for new investors. |
| 8 | Suitability | Low middle-class investors. | Rich or high-class investors. |
| 9 | experience | Need less experience. | Need good experience of the market. |
What is a mutual fund?
A mutual fund is a simple way by which we can invest our money into the stock market, equities, bonds and government bills to get some higher returns via some particular schemes. If we talking about the working of mutual funds, in the mutual funds. Fund managers create a pool of funds from the big and small investors.
After this, they invest the corpus to the common investment goals of their investors. Before investment fund managers research each selected stock very well like fundamentals of the company, previous performance of the company, price trends, and other important aspects of the company and the stock. After research, they choose a suitable stock and invest money in that particular stock for a better return.
Risk in mutual funds
A mutual fund is the easiest way to invest money. Investors like new or old can invest their money very easily with the help of mutual funds. In mutual funds, investors do not need to worry about their money because every mutual fund is managed by a team of experienced analysts and fund managers. A professional team of mutual fund reduce the market risk.
Mutual funds minimise the market risk with a diversified portfolio by investing all the money into different horizons and asset classes. In this way losses accrued on one horizon or class will be recovered by the profit gained by the other asset classes. The fund’s manager and the team of analysts continuously keep eye on the funds’ performance and take the right investment decisions with the reaction of the market.
How to invest in mutual funds.
These days mutual funds investments offer so many exciting and profitable offers. People who want to invest continuously search for the better option in mutual funds to invest. Now the quest rises how to invest in the mutual fund, to invest in the mutual fund there are two methods.
The first is to invest by making a single purchase which is known as a lump sum mutual fund, it’s a single-time investment and after the investment, you can withdraw your amount after the maturity of the selected scheme. Another way to invest in the mutual fund is to invest money in the braked of instalments pattern which is known as SIP.
What is SIP
Sip stands for Systematic Investments plans. A sip is a tool that helps to invest in mutual funds in an effective way. A sip is a tool or method by which we can invest in a mutual fund. When investors take a sip, in that case, investors follow a disciplined system of investments. This system allows investors to invest their money in small amounts periodically.
Sip allows the investors to invest in a mutual fund with a very little amount which is INR 500. This investor has to set a schedule with a broker. By fixing a schedule the selected amount will be automatically deducted from your bank account periodically. For the deducted amount investors gets units of the mutual funds. Every month investors get varied units of the mutual fund. And these units varied up and down with the fluctuation of the market.
What is a Lump sum Mutual fund?
A lump-sum mutual fund is the second way to invest in the mutual fund after SIP. It is the complete opposite method of investment of Sip, in the method investor invest his money in mutual fund in by single payment. This method of investment is used by investors who have a large amount of money.
In the lump-sum method, all units of the mutual fund are allotted in the beginning. The units are allotted according to the nav value. In this method, investors do not get the benefit of the varied net assets value. If NAV comes low in the month we can always bus on lower price and get more units so in sip is more convenient than the lump sum method.
Difference between SIP and mutual fund
Methods
Sip is a method in which investors invest in the instalments periodically. In these investors invest fixed amounts periodically and get units of the mutual funds to achieve their financial goals. Mutual fund units are allotted to investors according to the lowest price of the particular month.
On the other hand, lump-sum is also a method of investment in the mutual fund. In this method, investors invest all is corpus in a single payment. All the units of the mutual fund were allotted at the beginning at the market price and this price remained for the entire period of the investment.
Rupee average costing
When investors invest in the sip, investors enjoy the benefits of the bearish market. All we know is that a bearish market is when the prices of the shares and the equities are very low. It means when investors buy, they will get more units of the mutual fund which leads to more profit at the end of the scheme. Thus, investing regularly with the sip method investors can lower the buying average price.
The lump-sum method does not provide rupee average costing benefits. In this method, all the units are allotted in the beginning at the same price for the entire period of the investment.
Benefits of the compounding
When investors can invest in mutual funds by SIP method. All the investors enjoy the benefit of the compounding. For every payment in the sip, there is compound interest involved. In sip, we get more units than the last payments which lead to more profit with the help of compound interest. In lump sum all the units allotted at the time the beginning time so lump sum drives low returns than the sip.
Flexibility
When investors invest by the sip, it allows flexibility to the investor with a very small instalment which just starts from 500 INR periodically. In this manner, the sip is very suitable for the people who invest in their salaries. And there is also a Flexi Sip, which allows investors to waiver premium for every payment investor made.
On the other hand, lump-sum is only suitable for the rich and the people who have a surplus amount of money. Lump-sum investment is only possible above 5000INR. So, it is not possible for all the investors.
Volatility
In sip investment done in the instalments for the entire period of the investment in this manner, it reduces the uncertainties rises from the volatility of the market. So, sip lower the necessity of time to manage or keep an eye on the market.
On the other hand, in a lump sum system, investors need to find the correct time to invest by which they can get more units of the mutual fund. So, this method is very risky for new investors.
Convenience
While investors roll up in the sip it becomes automatic. Investors just choose the plan and instalment after that the selected amount is automatically deducted from their account. In this no need to worry about every time payment.
While investors invest in lump sum mutual funds, they have to do bank transactions and also have to pay for the bricking agents.
Stoppage
A sip provides a facility that if an investor wants to stop Sip, investors can easily exit from the scheme before maturity. Investors withdraw their invested money before maturity but they have to pay a penalty or exit load amount.
Lump-sum mutual funds cannot withdraw before the maturity of the scheme.
Top performing mutual funds with SIP in India
| Fund name | Category |
| Axis Blue-chip Fund Growth | Large-cap fund Growth |
| Mirae Asset Tax saver fund – Regular plan growth | Tax saving scheme |
| Kotak Standard Multicap Growth | Mult cap Fund growth |
| Motilal Oswal Long Term Equity Fund – regular plan growth | Tax saving scheme |
| Mirae Asset Large Cap Fund regular growth | Large-cap fund regular growth |
| Invesco India growth opportunities fund growth | Diversified fund |
These funds are not recommendations, compare all the funds on your level and other financial goals and then choose the right one.
Conclusion
By this article, it is clear that there is no sip and mutual funds are not parallel concepts but are conceding each other. With the difference between sip and mutual funds, it is very clear that Sip is a suitable method for investment in mutual funds. Sip I very good concept for the new investors also with less risk and less experience.
This is all about the difference between Sip and mutual fund we hope you understand all the concepts very well if you have any quarry then comment on your quarry and suggestions.
If you want to know about yoga vs exercise then go through our article Difference between yoga and Exercise
What is a mutual fund?
A mutual fund is a simple way by which we can invest our money into the stock market, equities, bonds, and government bills to get some higher returns via some particular schemes. If we talking about the working of mutual funds, in the mutual funds. Fund managers create a pool of funds from the big and small investors.
Risk in mutual funds
A mutual fund is the easiest way to invest money. Investors like new or old can invest their money very easily with the help of mutual funds. In mutual funds, investors do not need to worry about their money because every mutual fund is managed by a team of experienced analysts and fund managers. A professional team of mutual funds reduces the market risk.
What is SIP
Sip stands for Systematic Investments plans. A sip is a tool that helps to invest in mutual funds in an effective way. A sip is a tool or method by which we can invest in a mutual fund. When investors take a sip, in that case, investors follow a disciplined system of investments.
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