What is the difference between SIP and mutual funds?

Difference between Sip and mutual funds; Investors are always looking for better investment options. There are options in the market like Systematic Withdrawal Plans (SWP), Unit Linked Insurance Plans (ULIP), Equity Linked Saving Schemes (ELSS) and many others from hedge funds. 

But the most prominent are mutual funds, which added more than 81 lakh investor accounted in 2020, and systematic investment plans (SIP), which registered around 91.8 billion net SIPS in March 2021, according to RBI data. This article will discuss the difference between Sip and mutual funds.

Difference between SIP and mutual funds

Difference between SIP and mutual funds

Investors are more interested in maximizing their returns without the hassle of tracking their index and trading the market. Thus, many forms of investment now engage fund managers to trade on the investor’s behalf, saving the investor time. 

Moreover, the professional knowledge of the fund manager is beneficial in maximizing returns on investment.

Mutual funds and SIP put money in the share market but differ. In this article, we will discuss here what are mutual funds and SIP and the key difference between SIP and funds.

What is a Mutual fund?

Mutual investment is when an official fund house, such as a bank and asset management company, collects money from investors and dealers in securities on their behalf, aiming to maximize the profit ratio with low risk. 

Investing money in different assets for different investment horizons reduces the risk of market movement. When risk decreases, a loss in one asset had offset by a gain in another asset in the portfolio.

Investment is made in shares, bonds and commodities and had known as a portfolio for the individual investor. This portfolio had managed by a fund manager, also known as a finance manager. 

Mutual funds are one of the secure forms of investment where the investment had made in a lump sum. Various mutual funds aim to achieve objectives like small-cap, mid and large-cap funds, index funds, etc.

What is SIP?

SIP is equal to a mutual fund, but the investment had mostly made in a lump sum in mutual funds. However, in SIP, a small amount is regularly invested in the fund. With SIP, you can save every month or quarter at least Rs. Five hundred can invest. 

A fund manager is assigned to invest on behalf of investors in the market in many sectors, such as shares, bonds and commodities. The fund manager’s objective is to maximize profit while keeping the risk factor minimal.

One of the major advantages of investing in SIP is the capacity of compounding, where the interest earned on the principal amount has been reinvested. Over time, investors get higher profits.

Mutual Fund vs SIP – Key Difference between SIP and Mutual Funds

A common question new investors often asks is the difference between SIP and funds. Let us know the difference between SIP and Mutual Fund in detail here-

Investment value:

Investment in mutual funds was made in a lump sum, whereas investment in SIP was made in small recurring amounts on a monthly or quarterly basis.

The Investment form:

Investments are made in debt instruments, equity mutual funds, debt mutual funds, and hybrid instruments that combine equity and debt funds.

The Volatility of Retail:

The market is constantly converting into a bearish trend and a bullish trend. These ever-changing market trends impact funds more than Sip, as mutual funds’ investment worth is higher than SIPs.


Other charges like AMC (Annual Management Charge) and transaction costs are higher in funds than in SIP as the investment value of the mutual fund is higher. 

In mutual funds, the charges incurred by fund manager fees and transaction value are high, but investment value and trade value are always on the lower side in the Sip.


Both mutual funds and SIP had highly liquidated forms of investment. Redemption charges are higher in funds than in SIP. A mutual investment vehicle lets you gain exposure to bonds, stocks, or other financial instruments. 

SIP is a means of investing in funds. Comparing mutual funds and SIPs is like contrasting apples and oranges – they are completely different concepts. A mutual fund is a way of investment, while SIP is a method of investing in a mutual fund.

Where should you invest?

Mutual funds are considered a safer investment option than buying individual company shares. It is especially true for investors who are unfamiliar with the securities market.

Investors who need to diversify their investments to reduce risk on returns can consider mutual fund investments. Such funds provide exposure to shares of different companies at the same time. Mutual funds are a transparent investment vehicle, so buying and tracking is easy.

Additionally, mutual fund investors also get the flexibility of choosing their preferred mode of payment. If you need more time or means to track the day-to-day fluctuations of the market, opting for SIP to invest in mutual funds may suit you.

SIPs allow you to choose a fixed amount you like to invest in a mutual fund for a fixed period. It helps you average out losses and improve your profit potential in the long run.

Key Takeaways 

  • Mutual funds and SIP are subject to market risk. 
  • Mutual funds are a lump sum investment, whereas SIP is a recurring form of investment.
  • The investment amount in mutual funds is on the higher verge, while the investment in SIP is on the lower side.
  • Mutual funds and SIPs have tax benefits under Section 80C of the Income Tax Act; where an investor invests Rs. 1,50,000 exemption can claim.


Now that you understand the difference between SIP and Mutual funds, these are incomparable. A mutual fund is an investment path that benefits you by diversifying your investment and reducing its associated risks.

On the other hand, SIP is a method of investing in a mutual fund. So, there is no way to explain which is better – SIP or Mutual Fund.

Frequently Asked Questions

What is the best form of investment for an investor with regular income?

Investment in SIP had recommended for the investor who invests a small amount.

For higher returns, which is better, funds and SIP?

Mutual funds are more favourable than SIP for higher returns and gains, where the returns are regular over the long term.

Which is a more diversified portfolio?

Both have a diversified portfolio with funds allocated to securities, bonds and commodities.

In the long run, which is the most preferred form of investment?

In the long run, SIP is a preferred form of investment because of the compound interest.

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