A mutual fund is an investment method that pools money from different investors. And once pooled together, a fund manager manages the investment by dividing and investing the corpus into different stocks, bonds, treasury bills, commercial papers, and reverse repos. 

Investing in mutual funds is becoming extremely popular these days. People who have a lump sum amount at their disposal as well as people who do not have it are investing in different investment modes. Stacking your cash in the bank is an obsolete concept if you want to have solid returns. Besides, mutual funds come with lower risk than other such investing programs mainly because it is managed by a professional fund manager. Investors can stay assured after they have done their part of investing. 

The difference between SIP and mutual fund is a very subtle one. Some even think that SIP and mutual funds are not at all different. But SIP is a mode of investment under the mutual fund. Some other modes are a single investment, systematic transfer plan, and systematic withdrawal plan. One must fully understand the difference between SIP and mutual funds before investing. This will give them a clear idea about the scheme. 

Top Questions Answered 

Understanding the difference between SIP and mutual fund is easy but if you are thinking of investment, you must know further. There are certain crucial questions that need to be clarified in order to present to you a comprehensive view of the topic. 

Q1. How Much Should I Invest in SIP and Lump Sum? 

The major difference between SIP and mutual fund is the investment sum. When you are investing in the lump sum mutual fund plan, you can use your savings and invest a large amount. But in case you do not have that many savings, you need not shy away from the market. In a SIP plan, you can make a disciplined payment every month. The limit is as low as Rs. 500. 

Thus if you are a salaried individual who finds it difficult to save money in the current or recurring account in a bank, SIP is your pick. Start with the amount you are comfortable with and direct your bank to allow the deduction of the same amount every month. 

Q2. Can I Increase My Principal Amount Within the Tenure? 

Yes, you can increase your principal amount any time before the tenure ends. This means you can start with a smaller amount and later when you have more money, you can add that to your existing plan rather than making a new one. And this works both ways, whether you are investing in a SIP or lump sum mutual fund scheme. 

Q3. What is the Minimum Tenure for SIP and Mutual Funds? 

The minimum tenure for SIP is six months although it is recommended that you go for a longer term. If you face financial issues, you can opt for a minimum term of six months. In the case of lump-sum mutual fund investment, financial investors suggest that you go for at least three years in order to get a solid return. Keep in mind that the longer your tenure is, the better returns you get. This is the tenure difference between SIP and mutual fund and you opt for either depending on your financial status and how soon you want your money off the market and into your account. 

Q4. How Important is Market Timing in SIP and Mutual Funds? 

Market timing is switching funds between asset classes or in and out of the market. This is done mainly on predictions after observing the market closely. Market timing can make a great effect on your returns. This also is an important area of difference between SIP and Mutual funds. When investing in SIP, you need not worry too much about the market timing but if you are going for lump sum mutual fund investment, market timing becomes very crucial. It is best to invest when the market is low as it will give you higher returns later. 

Market timing becomes important when investing in a lump sum mutual fund. 

Q5. How Risky are These Investments? 

When it comes to risks, there is not much difference between SIP and Mutual funds. Both are satisfactorily safe when you consider the returns that you get. In fact, after fixed savings, mutual funds investment is considered the safest. Unlike the share market, you are not exposed to rampant risk. Low risk on SIP and other MF modes of investment encourages people from all walks of life to invest and grow their money. 

Both SIP and mutual funds are good options for investment. The kind you should go for will depend on how much you want to invest and in what way do you wish to pay your principal. Once you chart out your financial standing, you will be able to make a decision by yourself.