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What Is The Difference Between SIP & Mutual Fund? SIP v/s Mutual Fund

Let us see the difference between SIP and mutual fund investment through lump sum method

We often get queries from investors that they want to invest in a systematic investment plan (SIP).

Many of these queries are also about the difference between SIP and mutual fund.

SIP (systematic investment plan) is a method of investment in a mutual fund and not a product.

To help investors, first,  let us understand the difference between mutual funds and SIP.

What is a Mutual Fund?

A mutual fund is a pool of money gathered from investors with an objective of investing to achieve a common objective. The investments can be made in various assets like equity, bonds and money market instruments to earn returns while achieving the stated objective.

A mutual fund is professionally managed by an asset management company (AMC) and each investor participates proportionally to the number of units held by him or her.

  • A mutual fund is a type of investment vehicle which invests in either a portfolio of stocks or bonds and other securities or a combination. 
  • Mutual funds have the ability to give investors access to diversified, professionally managed portfolios at a low price.
  • Mutual funds are categorized based on the kinds of securities they invest in, their investment objectives, and the type of returns.
  • Mutual funds charge annual fees (called expense ratios) and other charges in return for the management of the fund on behalf of investors.

SIP And Lump Sum Investment in Mutual fund

SIP and the lump sum are simply two ways to invest in a mutual fund.

When you are investing in a mutual fund by paying a lump sum you get to purchase all the units in a single transaction. For example, if you want to invest Rs. 12,000 in the mutual fund then you make one single payment to complete the investment.

In the case of SIP, the same investment amount of Rs. 12,000 is spread across 12 months, where you have the flexibility to purchase units by investing Rs. 1000 every month.

So going by the above statement, SIP is not a product, investment option or instrument in itself. It is just a process through which you can contribute small but regular amounts to invest in a mutual fund and build a good corpus over a period of time.

SIP is usually considered a good method if you have a long-term investment goal.

Let us see the difference between SIP and lump sum method of investing in mutual funds.

4 differences between SIP and Mutual Funds

1. Investment Mode

While using SIP as a mode of investment you make regular payments to purchase units of mutual funds. This inculcates the habit of investing regularly.

2. Flexibility

Through SIP you have higher flexibility, where you can invest small amounts on a regular basis either weekly, fortnightly or monthly as per your convenience. Hence SIP is best for salaried people or for persons having regular cash flows.

SIPs allow you to invest in mutual funds without disturbing your present lifestyle and expenditure pattern.

Lumpsum investment in a mutual fund can be done only if you have bulk surplus money. Hence it is more beneficial for business persons and high net worth investors (HNIs) who can generally invest a large amount in a single go.

3. Lower Cost

By going the SIP way, you can benefit from cost averaging. This means that you can lower the overall cost of purchase by buying more units when the market is down and lesser units when the market is up.

This helps you to reduce your average cost of purchasing.

On the other hand in lump sum investment mode you end up purchasing all the units at a price which can be higher as you do not get the benefit of averaging.

4. Volatility

Investors, especially new ones are often confused about the best time to enter the market. If you invest in a lump sum manner there is always the question of timing the purchase and thus exposure to high volatility periods.

With a SIP, the purchase is spread over time and only some parts of your entire investment will face higher than usual market volatility.

In nutshell

Parameters SIP Lump-sum Mutual Funds
Investment way Regular  One time
Flexibility High Low
Cost Less due to rupee cost averaging High as the investment is done in a single transaction 
Volatility Less impact More impac


We hope this has helped you to understand the differences between SIP and mutual fund investment.

SIPs offer flexibility, lower cost due to averaging and offer an effective way to manage volatility. It’s simply a smarter way to invest.

You may also like to read ULIP vs Mutual fund which is a better investment option

You would also like to check difference between mutual funds and shares

Published on March 9, 2020