Mutual Fund SIPs vs Stock SIPs

While the SIP concept is accepted and popular for Mutual Funds, we find stock SIPs being advocated.

An SIP  in a fund which allows you to invest in a fund through regular installments over a length of time, works well. However, the same concept applied to individual stocks will significantly increase the risks to your portfolio.

Mutual Fund SIPs

The inherent advantages gained by investing in Mutual Funds, along with the advantages of systematic investing have proved beneficial. 

A few relevant advantages you get from a Mutual Fund SIP are highlighted

• No need of market timing and stock selection
• Cost averaging – You get more units when the market is low and similarly buy fewer   mutual fund units when the markets are high.
• Light on the wallet: You can commit small amounts to invest in a larger portfolio
• Risk is spread - you buy into a whole portfolio of stocks across market cap/sectors  depending on the Fund

Most of us invest in equity funds because we believe that they will deliver better returns than most other avenues over the long term.  However, the fact is that individual stocks don't deliver returns in an orderly fashion.

Stock SIPs

With mutual fund SIPs extremely popular, many brokers and trading platforms today offer SIPs in individual stocks. Just like in Mutual Find SIPs, investors can accumulate a stock by buying it based on standing instructions at a frequency of their choice.

However, in the case of individual stock SIP you are exposed to:

·   Concentration risk: SIPs in an individual stock may result in portfolio concentration and large exposures to a single asset. The same in a mutual fund SIP would mean the same amount spread across a diversified portfolio of stocks. If that one stock takes a beating due to company / sector specific factors…

·    Risk in selection of stocks: The second risk arising from stock-specific SIPs is that you could well be accumulating the wrong stock... Since investments are automatic and set, it would mean that while you are accumulating more and more of an asset, you may not monitoring and rebalancing. It is our view that if investors are not well informed and nimble, this could harm investor interest.  Especially, in today's environment, where regulatory changes, fluctuation in the currency value, loss of a big client can cause a drastic shift in a company's fortunes.

Even savvy investors find some choices going horribly wrong. Stock SIPs would mean bigger bets, month after month, on a few stocks of one’s own choice, which can subject one’s portfolio to considerable damage.

In conclusion:

If one chooses to invest in stocks, one can do so based on research and deliberate investing. Automating an investment in stocks will mean automatically investing in an asset even if the situation warrants an exit from a stock.


Investing in an active fund would mean that the fund manager is likely to be closely monitoring the portfolio and replacing stocks at regular intervals to be able to beat the benchmark.  This is the real benefit of an SIP in an equity fund.


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