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3 Differences between mutual funds and SIPs every investor must know

  • Highlights

  • A SIP requires a fixed investment at regular intervals

  • Choose SIP if you have a low risk appetite and want to invest a small sum each month

  • Mutual funds are for aggressive investors with a large corpus.

  • Unlike mutual funds, SIPs don’t need a minimum investment

Investing in a mutual fund is lucrative and ensures that your savings grow exponentially over time. When you invest in different mutual funds such as equity mutual funds, fixed income funds, balanced funds, and index funds, you have a choice selecting the method of investment. You can invest with a lump sum amount, which is generally referred to as a mutual fund investment, or you can opt for a Systematic Investment Plan (SIP).

To understand how you can maximise your profits, minimise your risk and build a corpus to meet your financial requirements with these options, take a look at the differences between SIPs and lump sum investments in mutual funds.

Process of investing

An SIP is a scheme in which you invest a fixed amount in mutual funds at a regular frequency, which can be monthly, quarterly, half yearly, or even weekly. Then, fund managers or mutual fund experts invest this amount on your behalf in mutual funds. An SIP, due to its nature of periodic investments, allows you to limit your losses and invest in the market via smaller amounts. A lump sum mutual fund investment could prove to be lucrative too, but comes with a higher risk quotient as it is a larger amount. Moreover, while an SIP gives you a fresh start each month or quarter, a mutual fund offers one chance to time your investment correctly and make the most of the highs and lows.

Rate of return

An SIP thrives on the volatility of the market. Your fund manager can buy an increasing number of units when the market is low which will automatically reduce the per-unit price. In the long run, due to rupee cost averaging and compounding, this is a safe option to earn substantial returns, making it ideal if you have a low risk appetite. When it comes to mutual funds, you have one chance to time your investment correctly, especially in a volatile market. However, if you have the experience and a substantial risk appetite, you can maximise your gains by investing aggressively.

How to invest in Bajaj Finance Fixed Deposit

Minimum investment amount

A SIP does not have minimum investment criteria whereas most lump sum mutual fund schemes have a minimum amount that you have to invest. While you can start an SIP with even Rs.500 each month, mutual funds require a greater commitment, sometimes even Rs.20,000 or Rs.50,000. You can make a decision based on the liquidity you currently have. If you’re just starting your career, for instance, an SIP is an easy way to invest with limited liquidity, and build investment discipline. On the other hand, if you are in your 40s and are saving for retirement aggressively, a lump sum investment may be more suited to you goal.

While a mutual fund is a type of investment, an SIP is a way in which you can invest in mutual funds. Regardless of which option you choose, ensure that your focus is on inculcating the habit of investing over a period of time. To ensure you’re doing what’s best for your money, make a mutual fund investment with a trusted company like Bajaj Finance. Get regular updates on the value of your investment, invest online with ease, and enjoy higher liquidity and low transaction costs as well. Fill in the application form and start investing immediately.

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