This difference may appear to be small but it can be quite meaningful in the long run. When you buy an SIP on an equity MF, the fund manager takes care of the stock selection. What to buy, what to sell, what to add and what to reduce; are all question that the fund manager answers and acts upon. When you get down to an equity-SIP, you will have to answer all these questions. These are tough questions to answer because they require that you have adequate knowledge of markets and also track markets on a regular basis. For an IT professional like the investor, the demands of his job itself may be too much. It may be impractical for him to focus on tracking stocks on a regular basis. He would rather invest that time and energy in his career and leave the SIP stock selection decision to an expert fund manager. Obviously, an equity MF-SIP will be a better choice for the investor in question.

How equity SIPs and equity mutual fund SIPs rank with one another on the diversification front. As the name suggests, diversification is the spreading of your risk. Here is a simple example. Assume that you have invested in the shares of a steel company and the stock price starts falling because China is dumping steel at cheaper prices into India. As an equity investor you do not have control over it. Even a mutual fund manager does not have control over these events, but since the fund manager has a larger corpus he can reduce the risk by spreading the money across a number of sectors and industries. This will ensure that your portfolio performance does not suffer just because one or two industries are doing badly. This benefit of diversification is, again, available to you when you invest through equity MF-SIP.