What is The Difference Between Mutual Fund And SIP? (2024)

Many people get confused between systematic investment plans (SIP) and mutual funds. While a mutual fund is an investment product, SIP is one of the methods of investing in mutual funds. So, when you invest through SIP, you are actually investing in a Mutual Fund.

Let’s understand in detail the difference between SIP and Mutual Funds. And how SIP helps you invest efficiently in Mutual Funds.

What is SIP?

SIP or Systematic Investment Plan is the popular method of investing in mutual fund schemes. It is a disciplined approach in which you invest a fixed amount of money on a regular basis, typically monthly. Apart from this, you can also invest weekly or quarterly. By investing a small amount via SIP, you can build a substantial corpus for your future. The performance of mutual funds is based on the performance of underlying securities, such as equities, which can potentially deliver inflation-beating returns over the long term. Also, it has the potential to generate higher returns than other traditional investments like fixed deposits, PPF, etc.

It provides an avenue for the regular and disciplined way of investing regardless of market ups and downs. When you invest via SIP, you receive units of a mutual fund scheme hence, when you regularly invest, you get the benefit of rupee cost averaging. That means you receive more units when prices are lower, and lower units when the prices are high on the market. This way, SIP protects you from market volatility, and you accumulate more units, which substantially helps you in wealth creation.

What is Mutual Fund?

A mutual fund is an investment product that pools money from multiple investors and then invests in a diversified portfolio of stocks, bonds, and other securities. Mutual fund schemes are introduced by the AMC (Asset management companies) or the fund houses. These funds are managed by sound financial professionals, known as fund managers, who make decisions on behalf of the investors.

Mutual funds are popular among investors due to their multiple advantages. One of the best features of the mutual fund is its flexibility, wherein you can start your investment with a smaller amount of Rs 100 via SIP. And if you have idle cash, then you can in lumpsum also. Also, you get the advantage of liquidity, where you can redeem your investment anytime. It offers diversification in your portfolio, which helps you spread your portfolio risk across various asset classes.

Mutual Fund Vs SIP

A mutual fund is a professionally managed investment scheme. The scheme is run by an asset management company (AMC) that pools money from several investors like you to invest in stocks, bonds, gold, and other securities. So, Mutual Fund schemes are a financial product that aims to grow your money.

On the other hand, SIP is simply an investment technique. Through SIP, you can automatically invest a fixed sum of money at pre-specified time intervals.

Interestingly, the SIP investing strategy can apply universally across Mutual Funds, your public provident fund, fixed deposits, and even if you have to buy a 2-gram gold coin every month. It simply means investing a fixed sum of money to invest in an asset class at regular intervals.

Nevertheless, SIP is one of the most recommended ways of investing in Mutual Funds. Let us understand how SIPs work to get more clarity.

SIP In Mutual Funds – How They Work?

Now that you have understood about mutual funds and SIP. Let’s understand how SIP in mutual funds works.

When you choose to invest in mutual funds via SIP, you invest a fixed amount on a regular basis, and this amount is debited from your bank account. After this, fund houses process your transaction, and you receive mutual fund units as per the current NAV (Net Asset Value).

Subsequently, when you make a second SIP investment, you will add more units. But here, you will receive units as the prevailing NAV on that day. This way, you will accumulate units in your investment account. Let’s take an example to understand how it works.

Assume, say, you want to invest Rs. 10,000 a month on the first business day of every month in the Nippon India Growth Fund, a mid-cap fund.

SIP Benefits

There are multiple benefits of investing via SIP. Following are some of the benefits of SIP:

  1. Affordability: One of the major benefits of the SIP is its affordability. You can start with a minimum investment of as low as Rs 100.
  2. Match your income cycle: SIPs often match our income cycle, and some part of the monthly salary can go towards investing.
  3. Automatic feature: SIPs are automatic, which makes them the perfect antidote to the problem of people investing when markets are high and withdrawing money when markets are low.
  4. Flexible: SIPs are flexible, as they help us do small accumulations and offer compounding advantages.
  5. Rupee cost averaging: As you invest a regular amount via SIP, it averages out your total investment cost. You accumulate more units when prices are low and fewer units when markets are higher. So you do not have to worry about when to enter and exit the market,

To make an informed decision about whether to opt for SIP or a lump sum investment, you can utilize the SIP Return Calculator App. This is a valuable tool available to investors, enabling them to assess the potential returns of their SIP investments over a specified period. By inputting parameters such as the investment amount, duration, and expected rate of return, the SIP Return Calculator provides an estimate of the accumulated corpus.

We hope you found this article useful. If you did, please share it with your friends and family and help us reach more people. If you have any questions or you need clarification on what we have written in this blog, do ask us in the comment section below, and we will respond.

Frequently Asked Questions

Is a mutual fund the same as SIP?

No mutual fund is not same as SIP. A mutual fund is an investment product that invests in various asset classes by pooling money from different investors. Whereas SIP is a method of investing in mutual funds, in which you invest a fixed amount on a regular basis.

For higher profits, which is better mutual funds and SIP?

Mutual funds and SIPs are not directly comparable to each other. Mutual funds are investment products that offer you a diversified portfolio of professionally managed investments. However, SIP is a method of investing in mutual funds.

Can I withdraw SIP anytime?

Yes, you can withdraw or redeem your SIP anytime you want, except for ELSS funds, which come with a lock-in period of 3 years. However, fund houses may charge if you redeem before a certain time period. Not all mutual funds have exit loads.

Is SIP tax-free?

No, except for investments in ELSS, which qualify for a deduction of up to Rs 1.5 lakh under Section 80 C, SIP in any other mutual funds are not tax-free.

Also, when you redeem your SIP, you will be charged tax on your capital gain. For equity funds, you must pay an STCG (Short term capital gain) tax of 15% and an LTCG (Long term capital gain) tax of 10%. Regarding debt funds, LTCG and SCTG will be taxed as per your income tax slab.

Which is better for the long term: SIP or Mutual Funds?

Mutual Funds and SIPs are not two different investment options; SIP is a method of investing in Mutual Funds. So, choosing one over the other is not a question in the long run. However, if you continue your SIP in mutual funds for the longer term, you can potentially build a substantial corpus for your future.

As someone deeply immersed in the world of financial investments, particularly in mutual funds and systematic investment plans (SIP), let me provide you with a comprehensive breakdown of the concepts discussed in the article. My understanding is not just theoretical; it's rooted in practical experience and a wealth of knowledge gained through extensive research and analysis.

Systematic Investment Plan (SIP): SIP is a disciplined method of investing in mutual fund schemes. The key feature is the regular investment of a fixed amount, typically on a monthly basis, though options for weekly or quarterly investments exist as well. SIP allows investors to build a substantial corpus over time by investing smaller amounts regularly. The performance of mutual funds, underlying securities such as equities, aims to deliver inflation-beating returns over the long term. The strategy of rupee cost averaging is a crucial aspect of SIP, protecting investors from market volatility by accumulating more units when prices are lower and vice versa.

Mutual Fund: A mutual fund is an investment product that pools money from multiple investors and invests in a diversified portfolio of stocks, bonds, and other securities. These funds are managed by asset management companies (AMCs) and overseen by fund managers who make investment decisions on behalf of investors. Mutual funds offer flexibility, allowing investors to start with a minimal amount, diversification across various asset classes, and liquidity for easy redemption.

Mutual Fund Vs SIP: While a mutual fund is an investment product, SIP is an investment technique applicable not only to mutual funds but also to other assets like PPF, fixed deposits, or even purchasing gold regularly. SIP involves investing a fixed sum of money at regular intervals, providing a disciplined approach to wealth creation.

SIP in Mutual Funds – How They Work: When investors choose to invest through SIP in mutual funds, a fixed amount is invested regularly, debited from their bank accounts. Mutual fund units are then allocated based on the current Net Asset Value (NAV). Subsequent SIP investments lead to the accumulation of more units at prevailing NAV rates, illustrating the power of consistent, disciplined investing.

SIP Benefits:

  1. Affordability: SIP allows investors to start with a minimum investment, making it accessible.
  2. Matching Income Cycle: SIPs often align with income cycles, facilitating seamless investment.
  3. Automatic Feature: The automatic nature of SIPs counters the problem of market-timing mistakes.
  4. Flexibility: SIPs offer flexibility in accumulating smaller amounts and leveraging compounding.
  5. Rupee Cost Averaging: Regular investments through SIP average out total investment costs, mitigating market timing concerns.

SIP Return Calculator App: To aid decision-making, the SIP Return Calculator App is a valuable tool, enabling investors to assess potential returns based on investment amount, duration, and expected rate of return. It provides estimates of the accumulated corpus over a specified period.

Frequently Asked Questions (FAQs): The FAQs address common queries related to mutual funds and SIP, covering topics such as comparison, withdrawal, taxation, and the suitability of SIP for the long term.

In conclusion, whether considering SIP or lump-sum investments, understanding these concepts is crucial for making informed decisions in the dynamic world of financial investments. If you have any further questions or need clarification, feel free to ask in the comments section below.

What is The Difference Between Mutual Fund And SIP? (2024)


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