What is the Difference Between SIP and Mutual Fund?
Do you struggle to understand the actual difference between Mutual Funds and SIPs? If yes, you are not alone. How?
As a matter of fact, half the people, that is, 50% of the public, are confused between mutual funds and SIPs. However, these two financial terms are simpler than you think. Let's see how.
This post guides you toward understanding the actual meaning of these two financial terms and draws a comparison of mutual funds vs. SIP to help you feel more confident about your investment options.
It is time for you to put your cellphones on DND and see what the future awaits for you with a list of top-performing mutual funds for 2025 by the end of this post.
What is a Mutual Fund?
A mutual fund is a diverse pool of money managed by authorized companies in the market. For example, asset management companies (AMCs) and banks.
These organizations collect money from investors and invest it in various assets. The diverse portfolio of assets may include stocks, bonds, and different other securities.
As an investor, you only need to invest money in AMCs or other authorized companies. After this, it is their job to find promising mutual funds or SIPs stocks and generate the most returns out of the investment.
Don’t Miss: How to Start SIP Investment in India: Guide for Beginners
What is a SIP (Systematic Investment Plan)?
A systematic Investment Plan or SIP is a particular way to invest in mutual funds or other kinds of stocks. There are different types of SIP such as fixed, flexible, etc.
You need to decide a particular to invest and you are good to go. In SIPs, you can also set an investment schedule. For instance, you can choose to invest monthly or quarterly. It depends on your source of income and its stability.
So, a mutual fund is a pool of stocks and SIP is a way to invest in mutual funds. So why wait until you can Start SIP with one click?
Are you getting it now? You must have come across several definitions. But it cannot get simpler than the above explanation.
Now, another question must be bothering you. Are SIP and Mutual Funds the same? Let’s know about the key differences between them.
Key Differences between Mutual Funds and SIPs
Although, a SIP is a way to invest in mutual funds still there are certain key differences you need to know. This way, you can choose between mutual funds or SIP.
| Features | Mutual Fund | SIP |
|---|---|---|
| Investment Approach | Investors can invest in lump sum amounts or periodic intervals (like SIPs). Fund managers decide where to invest and what strategy to use. | Investment in a fixed amount in periodic intervals like monthly or quarterly. Disciplined way of investment that inspires investors to save more money. |
| Risk Mitigation | Low to high risk but it depends on the types of mutual funds, frequency of investment, market conditions, etc. | Best SIPs protect investors from the risk of market volatility due to periodic intervals between each investment. |
| Return on Investment | Higher returns on long-term investment but risks are also higher. | Higher returns on long-term investment. |
| Flexibility | Difficulty in reselling funds or redeeming units, especially in the case of close-ended funds. | Investment through SIPs can be discontinued or modified at any point in time. |
| Affordability of Investment | Differs in case of SIP and lump sum investment. | Investors can make small investments at regular intervals, which makes SIPs more accessible to them. |
| Volatile Nature | Newcomers may face some difficulties in finding perfect market timings and making lump sum investments. | Reduced impact of market volatility as investments are distributed over periodic intervals. |
| Form of Investment | The main forms are Systematic Investment Plans i.e. SIP and Lump sum investment. | A certain amount is invested in periodic intervals like monthly or quarterly. |
Must Know: What is the Best Date for SIP? Tip for Smart Investors
Moving on, let’s understand what makes mutual funds worth investing.
What is Good About Mutual Funds?
After knowing the difference between mutual funds and SIPs. Let’s find out why mutual funds are investors’ favorite. There can be several stocks in a portfolio. Remember one thing only, the more the number of commodities, the less will be the risks.
But, such little information will not do any good to you. You must know the benefits you can get by investing in mutual funds. So, here they are:
- Risk Minimization: You can invest in several stocks or commodities through the Best Mutual Funds. Such diversification protects your money from market fluctuation.
You must understand one thing, the market is volatile. No matter how good you are at investment, you cannot always make profits. So, if you want a stress-free way of investing your hard-earned money, mutual funds are for you.
- Expert Management: You must be thinking how can you ensure that your money is safe in mutual funds? Which is better, mutual funds or SIP?
Well, this is where expert fund managers come into play. Fund managers are experts with competitive skills and experience. They have only one role to play which is to identify the best stocks to invest in. They conduct in-depth market research and analyze several reports on mutual funds vs. SIPs. Only then can they find the most promising stocks. These fund managers can tell about SIP and mutual funds differences.
You don't need to worry if you don't know the necessary to invest in mutual funds. You can still earn profits by taking advantage of experienced fund managers.
- Tax Benefits: Certain kinds of mutual funds can save your money from taxation. For example, Equity Linked Saving Schemes(ELSS) can reduce the burden of tax for you.
Section 80C of the Income Tax Act, 1961 protects ELSS from tax deduction. Such mutual funds schemes can save up to, if not more, Rs. 1,00,000 on your taxes in a year. This can vary from one scheme to another.
Important Read: Daily SIP vs. Monthly SIP: Which is Better for You?
Things You Should Know Before Investing In Mutual Funds
You must be happy after reading about the benefits of mutual funds, anybody will. But mutual fund is a double-edged sword, you can make great returns, but there are some risks as well. So before investing in mutual funds or SIPs, you should know the following things:
- Market Fluctuations - Your returns can vary based on your market conditions. So, be careful and it is best if you go with best-performing AMCs.
- Interest Rates - The higher the interest rates on commodities like bonds, the lower will be the prices. You may not earn any profits at all in some situations.
- Inflation - Your returns on the best mutual fundsmay not be enough to cope with inflation. Everything is getting costlier day by day, so make smart investments that give higher returns.
Why SIPs Can Be a Good Option for You?
You have learned about the benefits and risks associated with mutual funds. Since SIP is a way to invest in mutual funds, the risks associated with it are also more or less the same.
But, SIPs can promise you greater returns and protect you from market fluctuations.
Want to know how? Let's find out.
Benefits of Starting a Systematic Investment Plan
The following are some merits of doing SIP in 2025:
- Rupee Cost Averaging: In SIPs, you invest fixed amounts at regular intervals. This way, you can have more units during low prices and fewer when the prices are high. This is the most significant benefit of SIPs. You can level out your total investment cost over the time of your investment.
- Small Investment Amounts: If you have a stable source of income, you can invest in SIPs. It does not matter whether you earn a huge income or not. You can invest as low as Rs.100. That is the beauty of SIPs.
- Power of Compounding: This is another great benefit of SIPs. The compounding effect works as a silent force in SIPs. It can boost your investment over time. You can earn great money, whether it's mutual funds or SIPsif you have invested for long durations. In layman's terms, the longer you run, the higher you will earn. Start as early as you could and remain as long as you could.
- Convenient Way to Invest: SIP is a hassle-free way to invest in mutual funds. Even if you don't have expertise in financial markets, you still can earn. In SIPs, you can invest at regular intervals such as, quarterly, monthly, or even weekly in some cases.
Smart Investments, Bigger Returns
Which is Better: Mutual Funds or SIPs?
Now comes the most confusing question, which is better, mutual funds or SIPs?
Before getting into that you must understand one thing. Mutual funds are portfolios of several stocks and SIP is one way to invest in mutual funds. You can also invest in mutual funds in lump sum amounts.
But, what is a lump sum investment? And how is it different from SIPs? The following explanation will answer these questions.
Lump Sum Investment Plan
In simple words, a lump sum investment plan allows you to invest large amounts at one time in mutual funds. Unlike SIPs, in a lump sum investment plan, you don't need to worry about regular intervals.
Here, you can invest one large chunk of money at a time and forget about it for long durations. Of course, you will have to wait for long durations to earn returns through lump sum investment as well.
SIP vs. Lump Sum Investment Plan
As you know in the best SIPs, you will have to invest at regular intervals whereas in lump sum, there is no such need. So, why there are two investment plans in mutual funds?
There are two kinds of investors, one who wants to earn money but cannot risk investing it all at once. The second type of investors have excess money but cannot remember dates. They prefer to invest huge chunks of money all at once so that they can sleep carefree.
Lump sum investment plans are for the second type of investors. If you are one of them, congrats you found the perfect plan of investment for you. This is the core difference between SIP and a lump sum investment plan.
But, you will have to be very patient in your investment as you will have to tolerate market fluctuations.
So far, you have known about mutual funds vs. SIP. The above explanation must be enough for you to understand about them. It’s time to conclude but before let’s highlight some key takeaways.
Be aware: 11 Common Mistakes to Avoid While Investing Mutual Funds
Key Takeaways for a Systematic Investment Plan in Mutual Funds
It does not matter whether you invest through SIPs or make lump sum investments. Below are the points that you will need to keep in your mind each time you invest-
- Best mutual fundsare risky as they fluctuate with market conditions. So be cautious while investing. Your hard-earned money should not go in vain.
- SIP ensures slow but steady earnings while lump sum investment is a bit risky but may bear sweeter fruits. Forget about lump sum investment, if you can handle market fluctuations in the long run.
- If you don't have a stable source of income then do not start investing. Forget about mutual funds or SIPs.First, get a job or any other stable way to earn money. Remember one thing, investing comes second, but earning a living always comes first.
- You can always save your money from access taxation. You will have to know the right people who can help you with that. So, choose the best-performing AMCs and trust their expert fund managers as they know better.
Top Performing Mutual Fund for SIP in 2025
Now you have learned about mutual funds vs SIPs, it is the right time to suggest you some top-performing mutual funds. The following list contains the top 10 mutual fund schemes of 2025. Take your time, analyze each one of them on your own and then invest your money:
| Fund Name | Launch Date | Category | AUM (cr) | 3 Yrs Returns | 5 Yrs Returns |
|---|---|---|---|---|---|
| Nippon India Large Cap Fund | 08-08-2007 | Equity: Large Cap | ₹ 34,211 | 19.11% | 26.86% |
| ICICI Pru Large & Mid Cap Fund | 09-07-1998 | Equity: Large and Mid Cap | ₹ 17,818 | 21.09% | 30.37% |
| Bandhan Small Cap Fund | 01-02-2020 | Equity: Small Cap | ₹ 8,475 | 25.49% | 35.95% |
| Edelweiss Mid Cap Fund | 26-12-2007 | Equity: Mid Cap | ₹ 7,729 | 22.65% | 33.51% |
| Invesco India Contra Fund | 11-04-2007 | Equity: Contra | ₹ 15,961 | 18.63% | 26.88% |
| Nippon India Multi Cap Fund | 25-03-2005 | Equity: Multi Cap | ₹ 23,596 | 25.39% | 31.41% |
| ICICI Pru Savings Fund | 27-09-2002 | Debt: Low Duration | ₹ 22,238 | 7.10% | 6.76% |
| ICICI Pru Equity & Debt | 15-11-1999 | Hybrid: Aggressive | ₹ 38,507 | 17.43% | 16.76% |
| HDFC Balanced Advtg Fund | 01-02-1994 | Hybrid: Dynamic Asset Allocation | ₹ 90,374 | 15.11% | 14.68% |
| Nippon India Multi Asset Allocation Fund | 10-08-2020 | Hybrid: Multi Asset Allocation | ₹ 4,949 | 17% | - |
Final Thoughts
In short, mutual funds are the type of investment and SIP is a method to invest in mutual funds. It is the basic difference that people often forget. But hope, you will remember it now. To earn amazing returns on your investment, you must first identify what are your goals. Once you ensure a stable income and save even Rs.500 in a month, you can start investing in SIPs. With a little bit of patience and the right time of investment, anyone can earn from mutual funds.
