Many people use the terms SIP and Mutual Fund as if they mean the same thing. They are closely related, but they are actually two different concepts.
A Mutual Fund is an investment product, while a SIP (Systematic Investment Plan) is a method of investing money regularly into a mutual fund scheme.
Want to estimate your SIP investment?
Use the free Antokia SIP Calculator to estimate the potential future value of regular investments.
Open SIP CalculatorWhat Is a Mutual Fund?
A Mutual Fund is an investment vehicle that pools money from multiple investors and invests that money in assets such as equities, bonds, money-market instruments or other securities, depending on the scheme.
Different mutual fund schemes have different investment objectives, risk levels and asset allocations.
What Is SIP?
SIP stands for Systematic Investment Plan. It is a way of investing a predetermined amount at regular intervals, such as monthly, into a mutual fund scheme.
For example, an investor may choose to invest ₹2,000 every month into a selected mutual fund scheme through an SIP.
The amount, frequency and duration depend on the investor's chosen plan and the applicable mutual fund rules.
SIP vs Mutual Fund: The Main Difference
| SIP | Mutual Fund |
|---|---|
| Investment method | Investment product |
| Usually involves regular investments | Can be invested through SIP or lump sum |
| Commonly used for periodic investing | Money is invested according to the scheme's objective |
| Helps create an investing routine | Provides access to a professionally managed portfolio |
Can You Invest in a Mutual Fund Without SIP?
Yes. SIP is not the only way to invest in a mutual fund.
An investor may also make a lump-sum investment, where money is invested at one time rather than through regular periodic contributions.
The appropriate approach depends on the investor's financial situation, investment objective, risk tolerance and the specific mutual fund scheme.
How Does SIP Work?
A typical SIP works through regular contributions to a selected mutual fund scheme.
- Choose a suitable mutual fund scheme.
- Select the SIP amount.
- Choose the investment frequency.
- Set up the required payment instruction.
- The specified amount is invested according to the SIP instructions.
Benefits Commonly Associated With SIP
- Encourages regular investing.
- Can allow investors to start with relatively smaller periodic amounts, depending on the scheme.
- Helps maintain an investment routine.
- Can be convenient for people who prefer periodic investments.
- Regular investing can help spread purchases over different market levels.
However, SIP does not guarantee profits and does not eliminate market risk.
Important Risks to Understand
Mutual fund investments are subject to market risks. The level of risk depends on the type of mutual fund and the assets in which it invests.
- Investment value can rise or fall.
- Returns are not guaranteed unless specifically stated under applicable investment products.
- Past performance does not guarantee future performance.
- Investors should understand the scheme before investing.
Which Is Better: SIP or Mutual Fund?
The question is slightly misleading because SIP and Mutual Funds are not two competing investment products.
A better way to think about it is:
Mutual Fund = What you invest in
SIP = How you can invest regularly
For example, you can invest in a mutual fund through a monthly SIP, or you may make a lump-sum investment depending on the available options.
SIP Calculator
If you are planning regular investments, an SIP calculator can help you understand how different investment amounts, time periods and assumed rates of return may affect the estimated future value.
Remember that calculator results are estimates and actual mutual fund returns can vary.