(SIPs) are one of the most popular ways for retail investors to invest in mutual funds. However, an expert suggests that starting a SIP alone does not guarantee a well-balanced portfolio.
According to Aditya Agarwal, Co-Founder, Wealthy.in, investors should treat SIPs as an investment execution tool rather than a complete investment strategy.
Let’s find out why building the right portfolio matters more than just starting an SIP.
SIP is just a mode of investing, not a portfolio
“A SIP is simply a method of investing at regular intervals, whereas a portfolio is a structured investment plan built around an investor’s financial goals, time horizon, risk appetite, liquidity needs, and asset allocation,” Agarwal said.
Explaining why the distinction matters, Agarwal said SIPs help create investing discipline but do not solve the challenge of construction.
“An investor can run a SIP every month and still end up with an unsuitable portfolio if the money is directed into the wrong categories, excessive risk is taken, or investments are not aligned to specific goals,” he said.
“For example, investing entirely through SIPs in small-cap or thematic funds may work in a strong bull market, but it can expose the investor to sharp drawdowns and poor goal outcomes if the time horizon or risk capacity does not support such exposure,” he added.
Asset allocation comes first
According to Agarwal, a well-built mutual fund portfolio starts not with the SIP amount, but with goal mapping and asset allocation.
“Emergency funds, near-term goals, medium-term requirements, and long-term wealth creation all need different types of funds and different levels of risk. Equity SIPs may be suitable for long-term goals, but short-term goals often require debt or hybrid allocations to reduce volatility,” he explained.
SIP vs portfolio construction
To explain the difference between simply running SIPs and building a portfolio, Agarwal shared the following example.
| Fund | Investor A | 1-Year Return | Investor B | 1-Year Return |
| Fund 1 | Large-cap Fund | -15% | Flexi-cap Fund | -15% |
| Fund 2 | Mid-cap Fund | -18% | Multi-cap Fund | -12% |
| Fund 3 | Small-cap Fund | -24% | Multi-asset Fund | +21% |
| Overall Portfolio Return | -19% | -2% | ||
- Investor A: (33.3% × -15%) + (33.3% × -18%) + (33.3% × -24%) = -19%
- Investor B: (33.3% × -15%) + (33.3% × -12%) + (33.3% × +21%) = -2%
This example shows that although both investors invested the same amount through SIPs, investor B, with a better-constructed portfolio, suffered a lower loss after a year.
Agarwal explained that “SIP helps to get the benefit of rupee cost averaging, but portfolio construction helps to avoid big drawdowns in bear markets.”
Too many SIPs don’t guarantee diversification
Agarwal also warned against assuming that investing in multiple funds automatically creates diversification.
“Investors often accumulate too many funds with overlapping portfolios, creating clutter rather than true diversification. A portfolio with ten funds is not necessarily better than one with four if most of them hold similar stocks or follow similar mandates,” he mentioned.
“Performance chasing through SIPs is also a risk. Investing every month into whichever category has recently delivered the highest returns does not eliminate poor fund selection; it only spreads it over time,” he added.
Review your portfolio regularly
According to Agarwal, SIPs should be reviewed periodically to ensure they continue to support an investor’s financial goals.
“SIPs are therefore best viewed as an execution tool, not a substitute for investment strategy. Building a good portfolio requires four things: clear asset allocation, goal-based fund selection, controlled diversification, and periodic review,” he concluded.