Daily SIP vs. Monthly SIP - Understanding Key Differences

Tags: Wealth Management, Investment Lesson, Mutual Funds, Stock market, Budget, Finance, Investing, Personal Finance, Investment, ETFs, SIP

Mutual funds provide an investment avenue to help grow your money over time. To invest in mutual fund schemes, you may choose to invest a lump sum amount at once or fixed amounts regularly. Investing pre-defined amounts at regular intervals is facilitated via a Systematic Investment Plan (SIP). An SIP helps you benefit from the principle of rupee cost averaging when you stay invested over the long term. While many investors opt for monthly SIPs, some choose to invest daily, weekly, fortnightly or quarterly.

In this article, we compare two popular SIP options - daily SIP and monthly SIP - to understand the key differences between both. But first, let us quickly understand SIP & its benefits.

What is a Systematic Investment Plan (SIP)?

A Systematic Investment Plan or SIP allows you to invest a fixed amount regularly in a mutual fund scheme. The frequency of investment can be daily, weekly, monthly, fortnightly or quarterly.

SIP offers two key benefits.

1. Rupee cost averaging - By investing a fixed amount regularly, you will buy more units when the price is low and fewer units when the price is high. This averages out the purchase cost over time.

2. Investing discipline - SIP helps you invest regularly and consistently without worrying about market timing.

Now that you understand what an SIP is, the next question in your mind could be – at what frequency should I invest in an SIP? While monthly SIP may be a more popular choice among investors, few may be aware of daily SIP. Let us understand the differences between the two approaches.

Daily SIP

In a daily SIP, you invest a fixed amount on every business day in a mutual fund scheme. For example, you may invest Rs. 500 via a daily SIP, your total investment in a month would be around Rs. 10,000, depending on the number of business days in a month. The minimum amount you can invest per day varies with schemes, so you need to check the Scheme Information Document for the details.

Key features of daily SIP

• Allows small investments daily - You can invest as low as Rs. 100-500 per day, depending on the scheme chosen. This makes investing affordable.

• Helps Rupee cost average better - Investing daily captures short-term market fluctuations better

• No need to time the market - Daily investments reduce timing risk to a great extent.

• Ultra disciplined investing - Daily SIP builds strong investing discipline through daily commitment.

  
  

Cons of daily SIP

• More transaction volume - As your transaction volume is high, there are more entries in your bank & MF records.

• Portfolio movements daily - Since investments are made daily, your portfolio value changes daily. This may trigger unwarranted actions if you track it actively.

  
  

Monthly SIP

In a monthly SIP, you invest a fixed amount monthly in a mutual fund scheme. For example, you may invest Rs. 10,000 on the 5th of every month through a monthly SIP.

Monthly SIP allows you to invest fixed amounts every month to take advantage of rupee cost averaging. The less frequent investments help keep the required portfolio monitoring low.

Pros of monthly SIP

• Convenient frequency - Easy to track and continue monthly SIPs for long periods.

• Aligns with salary - Monthly SIPs allow steady investments towards goals in line with monthly salary credits and home budget cycles.

• Less volatile - Monthly SIPs mean less frequent investments, so you can manage your finances more efficiently.

  
  

Cons of monthly SIP

• Only monthly averaging - Unlike daily SIPs, monthly SIPs average only on a monthly basis.

• Market timing risk - Chance of investing at market peaks if monthly amount is large.

  
  

Which is Better for You?

• If you can invest small amounts daily and want higher rupee cost averaging, opt for daily SIP.

• If you want to invest larger fixed amounts monthly towards financial goals, go for monthly SIP.

  
  

Daily SIP and monthly SIP both help you benefit from rupee cost averaging and disciplined investing. Daily SIP offers more frequent investments and better averaging but requires more tracking. Monthly SIP offers convenience of less frequent investments, but you miss out on daily averaging. Choose the option that suits your investment style and needs. Consistently investing over the long term through SIP is key, be it daily or monthly.

Disclaimer:        

The information set out above is included for general information purposes only and is not exhaustive and does not constitute legal or tax advice. All complaints regarding Mutual Fund can be directed towards visit www.scores.gov.in (SEBI SCORES portal). Readers are requested to make informed investment decisions and consult Chaitanya Financial Consultants – 9000628943 / mfd.mmr@gmail.com to determine the financial implications with respect to investing in Mutual Funds.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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