In the world of finance, particularly in the context of Mutual funds, the common investment strategy is Systematic Investment Plan (SIP).
What is the advantage of SIP compared to other investments?
SIP allows you to invest a fixed amount of money at regular intervals into a selected mutual fund scheme.
Based on your financial goal or target amount & the time horizon left, you can easily estimate the investment amount & the frequency to accomplish the same.
If you have a lumpsum amount, then you can invest right away. But if you need to save on a regular basis, what should be the frequency mode to achieve the target amount?
Table of Contents
1.)Doe the SIP frequency matters really?
2.)Monthly Vs Fortnightly Vs Daily SIP Return – Bench Mark Return
3.)Monthly Vs Weekly Vs Daily SIP Return – Scheme level Return
4.)Which is a better mode?
5.)Tax Efficiency – Monthly SIP vs Daily SIP
6.)Choosing SIP According To Cashflow
1. Does the SIP frequency matter really?
The choice of SIP frequency depends on your financial goals, risk tolerance, and convenience. Most of the fund houses & Mutual fund distributors pitch in with data related to ‘Monthly SIP’ investment while promoting a mutual fund scheme. But a SIP can also be daily, weekly, fortnightly, or quarterly.
Should you stick to the most popular mode i.e., the monthly SIP or should you move on to other modes? To answer this, let us look at the number stack up.
2. Monthly Vs Fortnightly Vs Daily SIP Return – Bench Mark Return
Let us look at the return for the Benchmark index under various modes. The following table shows the return for 10 years starting from 01 Jul 2013 and ending on 30 Jun 2023.
The monthly SIP is ₹ 10,000 & the fortnightly SIP is ₹ 4919 & the daily SP is ₹ 487 & the total amount invested is one & the same under all scenarios i.e., ₹12 lakhs.
10-year return under various Mode
|S&P BSE Sensex||14.16%||14.15%||14.13%|
|NIFTY 50 TRI||13.83%||13.83%||13.80%|
|NIFTY Midcap 150 TRI||18.61%||18.63%||18.58%|
|NIFTY Small cap 250 TRI||15.93%||15.96%||15.94%|
Inference from the table: Hope the above table has a comprehensive list of indices. There is no impact on returns under various modes. The difference is just 0.02 or 0.03% which is minuscule.
3. Monthly Vs Weekly Vs Daily SIP Return – Scheme level Return
Now, let us look at the specific fund level return under various modes. This will give you better insights. For this, we have chosen the Canara Robeco Blue-chip Equity Direct Growth fund. This is a 5-year return & the current value as on 24 July 2023.
|Canara Robeco Blue-chip Fund Direct-Growth|
|SIP Frequency||SIP Amount||Total amount invested||Current Value of Investment (24 Jul 2023)||CAGR|
Again, the result is the same, there is no paramount difference in choosing the daily or weekly mode. The difference in the final maturity amount is only a few bucks & if you round up the return percentage it is the same under all scenarios.
4. Which is a better mode?
In the mutual fund industry, the term Systematic Investment Plan – SIP is synonymous with monthly investment. Even it applies to Systematic Transfer Plans (STP) & Systematic Withdrawal Plans (SWP).
The above analysis clearly shows that the return is the same under any frequency mode. So, it is up to your convenience in selecting the SIP frequency.
However, selecting the monthly mode have an advantage over other modes due to the following reasons.
Investing monthly is convenient for most individuals, especially salaried employees. The monthly investment amount can be chosen as per your monthly budget. Once you set up a monthly SIP, the investments happen automatically, deducted directly from your bank account
Monthly SIPs encourage financial discipline as you commit to investing a fixed amount at regular intervals. It reduces the temptation to time the market or make impulsive decisions based on short-term market fluctuations.
Monthly SIPs are ideally suited for long-term goals such as retirement planning, children’s education, or buying a house. By investing regularly over an extended period, you give your investments more time to grow and potentially achieve higher returns.
Monitoring the monthly SIP is comparatively easier than weekly or daily SIP. When you receive the account statement for the investment or when you compute capital gains it is difficult to handle multiple entries.
SIP allows you to invest a fixed amount irrespective of the current market condition. You get more units when the market is low & you get lesser units when the market is high. Thereby, you average out the cost per unit over time which is technically called Rupee-cost averaging.
5. Tax Efficiency – Monthly SIP vs Daily SIP
This is because capital gains must be reported on tax returns at the time of redemption. Then, you must report capital gains for each daily purchase you make.
Monthly SIPs are significantly easier to manage in that aspect. When paying taxes, the complexity of a daily SIP simply rises.
Despite what the past data suggests, there is no proof that a daily SIP will outperform a monthly one in the future. Therefore, it is preferable to choose your SIP frequency depending on both your convenience and your investing time horizon (if it is longer than a few years, you should just choose monthly SIPs).
6. Choosing SIP According To Cashflow
It doesn’t matter if you do a monthly, daily, or weekly SIP if you are investing for the long term (let’s say 10-15+ years).
However, it is entirely up to you if you really want a SIP that is spread more than a monthly one. Decide yourself to carry it out.
A quarterly SIP may be chosen in place of a monthly one for those who find it difficult to manage monthly SIP due to inconsistent cash flows, such as those with erratic business income or if you are investing out of your quarterly bonus. You can check out the Economic Times article, ‘Will daily or weekly SIPs help you to earn better returns’? This will help you gain a better perspective.
“The first rule of compounding is to never interrupt it unnecessarily”,
– Charlie Munger
It is important to provide ample time for your SIP to grow. You can also read the blog on SIP Investment Mistakes! How to Overcome Them?
SIP is just a tool for Mutual investment. SIP – be it daily or weekly or monthly, the difference in terms of returns is negligible. Your focus should be on selecting an appropriate mutual fund scheme based on your financial goal, time horizon & risk tolerance.
The main agenda is to achieve your financial goals. For that, you need to select a fund, invest regularly & monitor your investment. The simpler you keep your investment, the easier to monitor it.
It won’t matter in the long run if you perform your SIPs on a daily or monthly basis.
The amount of wealth you amass will depend on whether or not you are making the proper SIP contributions.
Hope, your question on SIP frequency is sorted now. Probably, the next question that may arise in your mind is which is the best date for SIP in Mutual funds. You can check our blog for a detailed analysis.
Regular and disciplined investing is a powerful tool to build wealth and achieve your goals over time.