Systematic Investment Plan (SIP) vs. Mutual Funds

Think of it like this: You and a lot of other investors put money into a big basket of funds. A fund manager takes this basket of funds to invest in high-performing assets. Once these assets start generating returns, they are divided among you and other investors depending on the initial contribution.

Why Mutual Funds?

Here are a few reasons why mutual funds are a preferred investment option:

• Allows Portfolio Diversification
  Mutual funds allow you to generate income through different types of assets by making a single investment decision.
• Funds are Professionally Managed
  Mutual funds are managed by professional fund managers who have a deep understanding and the tools to analyse the market better.
  Additional Info: Mutual Funds are regulated by the Securities and Exchange Board of India, which creates a sense of safety and transparency.
• Mutual Funds are Cost-Effective and Typically Liquid
  Typically, mutual funds do not come with high minimum investment requirements. You can also find any open-ended schemes that allow easy subscription and withdrawal, or you can redeem units of mutual funds that promise liquidity.

Investment Trivia: The total Assets Under Management (AUM) for mutual funds reached a whopping figure of ₹46.63 lakh crore as of March 2024

Systematic Investment Plan: An Overview

A systematic investment plan, as the name suggests, is a way of investing in a fund of your choice by setting up an automatic investment. Under this type of investment plan, a fixed amount of money is invested in a choice of fund at regular intervals that can either be monthly, quarterly etc. Think of it like this: You pick a fund of your choice, and instead of investing a lump sum of money at once, you choose to invest a fixed amount of money at regular intervals. SIP allows you to do this seamlessly. It is an autopilot way of investing.

Why SIP?

• Promises Discipline and Consistency
  Systematic Investment Plans promise a disciplined and consistent investment habit, thus making it a reliable option for novice investors.
• SIP Allows Rupee Cost Averaging
  Under SIP, you continue to invest a fixed amount at regular intervals irrespective of the fluctuations in the NAV (Net Asset Value) of units in the mutual fund. This means that when the NAV is low, you get more units, and when the NAV is higher, you get fewer units. This usually brings stability to your investment portfolio in the long run.
• The Power of Compounding
  The returns you generate through interest from your investments through SIP are invested in the actual corpus, thus letting your money grow in the long run.
• SIPs are Cost-Effective
  You can easily start SIP for mutual funds with a minimum investment of just ₹500 per month.

Investment Trivia: India witnessed a contribution of ₹2.63 lakh crore in SIPs in the financial year 2024-2025, showcasing the belief of investors in choosing a disciplined investment approach.

Mutual Funds and Systematic Investment Plan: Highlighting the Differences

Now that you have a fair understanding of both mutual funds and systematic investment, let’s take a quick look at the key differences between these two:

Mutual Funds

A mutual fund is a type of investment instrument that pools money from different investors to raise funds that are then invested in different types of assets by professional fund managers.

Investment Type: A mutual fund is a type of investment or an investment product.

Level of Risk: The level of risk and a mutual fund depends upon the performance of the underlying assets.

Minimum Investment Requirement: The minimum investment required for a mutual fund usually depends on the fund manager.

Systematic Investment Plans

A systematic investment plan is the way of automatically investing a fixed amount of money at regular intervals in a fund of your choice.

Investment Type: A systematic investment plan is a method of investing in an investment instrument.

Level of Risk: Since a systematic investment plan allows the benefit of rupee cost averaging in compounding, investors can lower their risk in the long run.

Minimum Investment Requirement: The minimum investment required to start a SIP for your mutual fund is ₹500 per month.

Summing Up

By now, you would have understood that a mutual fund is simply an investment instrument that you choose, and SIP is the method to choose to invest in any investment instrument. Combining these two is usually considered a smart option, whether you are a novice investor or an expert, as you get to benefit from portfolio diversification and a disciplined investment approach.

If you want to invest in a mutual fund by starting SIP, make sure that your choice of fund allows SIP investments. Enter Jio Insurance Broking to help you find funds with impressive returns and SIPs.