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Mutual fund companies also offer a Systematic Investment Plan (SIP) to help investors make regular investments in smaller amounts without having to wait to save a lump sum. 

One important point to note is that a mutual fund is an investment product and SIP is a mode of investment. The two cannot be differentiated. You can do an SIP into a mutual fund.

However, if you are new you may find the terms confusing.

Invest in direct mutual funds

  • Enjoy 0% commission
  • SIP starting at ₹500

Let’s start with the definitions of each of them.

What is a Mutual Fund?

A mutual fund is an investment avenue where a fund house pools money from lakhs of investors like you and then invest the money collected in individual stocks, bonds, and other financial instruments. So, every mutual fund has a basket of securities that it has invested in to reach the objective of the fund while keeping the risk levels within the predetermined levels. Units of the mutual fund purchased by an investor can be traded on the secondary markets. There are various categories of mutual funds based on specific goals, orientation towards debt or equity, sectors invested in, and risk levels. 

What is a SIP?

SIP is short for Systematic Investment Plan. When you decide to invest, you can either save the amount to invest in one go or make small investments every month/quarter. With SIP you can invest as low as Rs 500 per month as well depending on the mutual fund scheme and the fund house.

Almost all mutual funds have the SIP facility, but the minimum amount required to invest may differ.

Methods of investing in a Mutual Fund

When you decide to invest in a Mutual Fund, you have to choose the method of investing (if offered by the fund). The two methods available to you are:

>>> Lump Sum <<<

When you opt for a lump sum investment, you make a single investment of the total amount that you wish to invest in the fund. So, if you want to invest Rs.50,000 in a mutual fund and opt for the lump sum method, then you will need to have Rs.50,000 with you to make the investment.

>>> SIP <<<

On the other hand, if you opt for a SIP, then you can start investing with a small amount. Most mutual funds allow investors to invest a minimum of Rs.500/1000 to get started. Hence, if you want to invest Rs.50,000 and opt for a 10-month SIP, then you can invest Rs.5000 every month.

Summing Up

A Mutual Fund is an investment vehicle allowing you to gain exposure to stocks, bonds, or other financial instruments. While an SIP is a tool to invest in a Mutual Fund. Comparing Mutual Funds and SIPs is like comparing apples and oranges – they are two completely different concepts. A mutual fund is an investment avenue while a SIP is a method of investing in a mutual fund.

FAQs

Q1. What is the difference between mutual fund and SIP?

SIP and Mutual Fund Difference: Mutual Fund is an investment product while a SIP is a method of investing in a mutual fund.

Q2. What is the advantage of investing in mutual funds through the SIP route?

There are various advantages of opting for the SIP route of investing in mutual funds:

  • It allows you to start investing with a very low amount
  • Helps get into the habit of investing regularly
  • In a volatile market, it averages the price down making it easier to book profits

Q3. What do I need to start a SIP?

You need to be KYC compliant with the fund house you wish to purchase a mutual fund from or a brokerage firm that deals in multiple fund houses.

You will also need a bank account, a Demat account, and an account with the fund house to start a SIP.

Q4. Is there a minimum amount to start SIP?

Yes. Every mutual fund specifies the minimum amount for SIP. Usually, it is Rs 500 per month.

Q5. How do I choose a mutual fund to start a SIP?

Choosing a mutual fund to invest in involves a lot of factors like your financial goals, risk tolerance, investment horizon, current portfolio composition, etc. Hence, create an investment plan or talk to a professional before making the purchase.

Q6. Can I stop a SIP anytime I want?

Yes. Usually, it may take one more month before the SIP can be stopped after submitting the documents.

 

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Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.