SIP stands for Systematic Investment Planning. It allows you to invest systematically i.e. weekly, monthly or quarterly based on your preference.

In other words, SIP is a tool by which you can invest in mutual funds.

SIP is a method of mutual fund investment and not a type or comparable investment instrument.
The other tool for investing in a mutual fund is a lump sum amount or one-time investment.

SIP is a very smart and hassle-free way to invest in mutual funds. Unfortunately, many investors, especially new ones, think SIP is an investment by itself, while it actually is a way to invest in mutual funds.

A mutual fund is a financial instrument, which pools your and other investor’s money in stock market if you opt for an equity mutual fund.

If you opt for a debt mutual fund, and the money is invested in treasury bills, Government Securities, Corporate Bonds and Money Market instruments. Your money is invested in a mix of stocks and bonds if you choose a hybrid fund.

So, if you do not wish to invest in the market directly or you do not want to take a high risk but want to invest in the market with low risk, then mutual funds offer you great schemes based on your needs and objectives.

To invest in these mutual funds, there are two methods you can choose from. First through a lump sum and second through Systematic Investing Plan (SIP).

A lump sum is a single large investment done by an investor in one go. A debt mutual fund is generally preferred for this kind of investment.

Whereas, an SIP is an option of investing a fixed sum in a mutual fund scheme on a regular basis i.e. predefined regular interval. It is similar to regular saving schemes like a recurring deposit.

It is a tested method of minimizing risk and yet enjoying good returns, by regular, periodic investment, over a long period of time.

SIP is the ideal method to invest in the equity market as it involves staggering your investments over the whole financial year. It will help you to average the cost of purchase and beat volatility. Also, it brings financial discipline to your life.

Author's Bio: 

I'm Aneet Trifid, I am sharing an article about an overview of Difference between SIP and Mutual Fund. we provide Stock Trading Tips