Daily, Weekly, or Monthly SIPs: Which is better?

As a mutual fund investor, you're likely familiar with Systematic Investment Plans (SIPs). Over recent years, SIPs have emerged as the preferred choice for investing in mutual funds, particularly equity funds. The advantages are evident: SIPs enable you to build a substantial corpus through modest investments. Additionally, they facilitate rupee cost averaging, smoothing out fluctuations in investment costs over time. Furthermore, SIPs instill discipline in your investment approach.

However, a common query arises: If SIPs offer such benefits, why not increase their frequency? What if you considered opting for weekly or even daily SIPs? Would more frequent investments yield better returns through improved averaging? In this article, we delve into the question of what's better: daily, weekly, or monthly SIPs, considering your individual financial objectives and preferences.

What are SIPs in Mutual Funds?

Systematic Investment Plans (SIPs) are a disciplined approach to investing in mutual funds. You commit to investing a pre-determined amount at regular intervals, typically monthly. This invested amount is automatically deducted from your bank account, eliminating the need for manual intervention and fostering consistency. SIPs leverage the power of rupee-cost averaging, which essentially means you purchase units of a mutual fund at different price points. This mitigates the risk of investing a lump sum at the wrong time.

Consider this: if you invest ₹1000 every month into a mutual fund, you buy more units when the price is low and fewer units when the price is high. Over time, this averages out the cost per unit, potentially leading to better returns compared to investing a lump sum. Additionally, SIPs benefit from compounding, where your returns are reinvested, earning returns on returns, and accelerating your wealth creation. SIPs are particularly beneficial for investors who want to inculcate a habit of consistent saving and investing.

Now, let's explore the different types of SIPs based on investment frequency.

Types of SIPs Based on Tenure

Daily SIPs: Daily SIPs are when you invest a certain amount daily. This allows for even more frequent averaging of the cost per unit compared to monthly SIPs. However, there are limitations to consider.

• Feasibility: Not all investment platforms offer daily SIPs. Additionally, managing daily transactions can be cumbersome and require meticulous record-keeping.

• Impact on Returns: Studies haven't shown a significant difference in returns between daily and monthly SIPs over the long term.

• Fund Management Efficiency: The potential growth of daily SIPs hinges on the efficiency of fund management. Hence, it's crucial to assess the credibility and strategy of the specific Mutual Fund before choosing daily SIPs.

• Volatility: The performance of daily SIPs could be influenced by investments in mid-cap and small-cap stocks, which are typically more volatile. Opting for daily investments in such funds may result in increased volatility compared to monthly SIPs. Conversely, daily SIPs may provide more consistent returns when investing in large-cap funds.

• Taxation: Taxation complexities arise with daily or weekly SIPs, as each SIP is treated as a distinct investment requiring separate accounting. Consequently, opting for daily or weekly SIPs can substantially increase your workload without providing commensurate compensation.

Monthly SIPs: The most popular choice in India, monthly SIPs align well with the salary cycle of most working professionals. They are convenient to manage, require less frequent monitoring, and are readily available on most investment platforms.

• Income Cycle: Opting for monthly SIPs is preferable if you receive a fixed salary each month, as they synchronize with your income cycle. However, choosing daily SIPs over monthly ones might pose challenges in monitoring your investments consistently.

• Impact on Returns: Studies haven't shown a significant difference in returns between daily and monthly SIPs over the long term.

• Investment Tracking: Daily SIPs may require meticulous tracking and lead to numerous entries in your account, whereas monthly SIPs offer a more streamlined and manageable approach.

Weekly SIPs:  A compromise between daily and monthly SIPs, weekly SIPs offer more frequent averaging than monthly but are less frequent and administratively easier than daily SIPs. Similar to daily SIPs, research suggests minimal impact on returns compared to monthly SIPs.

Daily, Weekly, or Monthly SIPs: Which is better?

SIP Type	Frequency	Pros	Cons
Daily	Every Day	Most frequent cost averaging	Less prevalent, cumbersome tracking
Weekly	Weekly	More frequent averaging than monthly	Less common than monthly SIPs
Monthly	Monthly	Convenient, aligns with salary cycle	Less frequent averaging than daily/weekly

Table of Differences between Daily, Weekly, and Monthly SIPs

	Pros	Cons
Daily SIPs	-Mitigates timing risk by spreading investments across various market cycles. -Allows for even more frequent averaging of the cost per unit	-Higher frequency may result in increased transaction costs. -Requires more frequent monitoring of investments, which may not be suitable for all investors.
Weekly SIPs	- Strikes a balance between daily and monthly SIPs, offering more frequent investments without the hassle of daily monitoring. - Can capitalize on short-term market trends.	- May not fully leverage the benefits of rupee-cost averaging compared to daily SIPs. - Investors might still need to time their investments based on the chosen day of the week.
Monthly SIPs	- Simple and convenient, requiring minimal monitoring. -Suitable for investors with steady cash flows.	- Vulnerable to timing risk, as investments are made only once a month. -May not fully capitalize on short-term market opportunities.

Choosing the Right SIP for You

The optimal SIP frequency depends on your individual circumstances. Here are some factors to consider:

• Income Cycle: Monthly SIPs are ideal if you receive a fixed monthly salary.

• Investment Horizon: The long-term nature of SIPs diminishes the impact of frequency on returns. Focus on consistent investing over a long period.

• Investment Amount: Smaller investment amounts might be better suited for daily or weekly SIPs to achieve a sense of regular contribution.

• Discipline and Tracking: If you struggle with managing frequent transactions, monthly SIPs are a simpler option.

Conclusion

It is evident that the choice ultimately hinges on factors such as income cycle, risk tolerance, and monitoring capabilities. While daily SIPs may offer potential advantages in certain scenarios, for most investors, monthly SIPs continue to hold sway as the preferred option, thanks to their simplicity and efficacy in wealth creation.

When weighing the merits of daily versus monthly SIPs, historical evidence suggests that altering the frequency of SIPs doesn't substantially affect returns. Moreover, the adoption of daily or weekly SIPs introduces additional complexities concerning record-keeping and taxation, potentially outweighing any perceived benefits.

Monthly SIPs transition seamlessly with the monthly income cycles of the majority of individuals and provide a structured approach to investment. Their simplicity and ease of monitoring render them an optimal choice for those seeking to build wealth steadily over time.

In essence, successful investing is not just about choosing the right strategy; it's about staying committed, regularly reviewing your portfolio, and making informed decisions based on your financial objectives and market conditions. Regardless of whether one opts for daily or monthly SIPs, the overarching objective remains consistent: staying consistent on the investment journey. Consider speaking to your financial counsellor to understand what is the best approach for your personal situation.