SIPs are becoming super popular among investors, and it’s easy to see why! They’re affordable, convenient, flexible, and allow you to customise your mutual fund investments in many ways – You can pause them, change the amount, or even increase it as your income grows. Plus, you get to pick how often you want to invest. This is called the frequency of investment. While monthly SIPs are the most common choice, AMCs also give you other options like daily, weekly, and quarterly SIPs. Here we’ll understand the differences between Daily SIP vs monthly SIP, and analyse which of the two is better.
What Is SIP?
When you’re investing in mutual fund schemes, you’ll come across primarily two modes of investment. The first is called a lump sum investment, where you’ll invest a large amount in one go. The second is known as SIP or Systematic Investment Plan. This method of investment allows you to contribute a fixed amount of money on a predetermined date on a regular basis, like daily or monthly.
Once you’ve set up your SIP, the money will automatically get deducted from your linked bank account on the date you specified and will be invested in the mutual fund you’ve selected. This method offers several advantages, a big one being making mutual fund investing easier and more affordable for investors. SIPs also inculcate financial discipline and take advantage of rupee cost averaging, which can help reduce the impact of market volatility over time.
Let’s talk about rupee cost averaging for a minute, as this quality of SIPs is pretty important when we’re discussing daily SIP vs monthly SIP. When you invest in a mutual fund scheme, you’re actually purchasing the fund’s units. The price of these units is determined by the fund’s NAV or Net Asset Value. Just like stocks on the exchange, the NAV of a fund fluctuates.
However, while stock prices fluctuate throughout the day, NAV is calculated and updated only once a day because fund managers calculate the NAV using the closing prices of the underlying securities in the fund’s portfolio. If the NAV of the fund on a particular day is low, you’ll buy more units with the same amount of money compared to days when the NAV is high. When this process of consistent buying of units at varying NAVs is repeated over time, it leads to rupee cost averaging. Now the average cost per unit is balanced out across different market conditions.
Based on the frequency of contributions, SIPs can be classified into various types such as daily, weekly, monthly, quarterly, and annual SIPs.
What Is Daily SIP?
As the name implies, a daily SIP allows you to invest a fixed amount of money in a mutual fund scheme every business day. But what is daily sip doing differently, exactly? The idea behind investing daily is that since the NAV of the fund goes up or down every day, why not take advantage of these fluctuations to average out your investment cost in a more effective manner? Frequent investments can lower the average cost per unit, especially when the markets are volatile.
If there are 252 trading days in a year, that’s 252 different NAVs for your investments, as opposed to just 12 NAVs if you were investing monthly. This gives you a more elaborate level of rupee cost averaging.
What Is Monthly SIP?
Moving on to what is monthly sip. This type of SIP allows you to invest a fixed amount of money each month on a predetermined date. Most SIP investors in India prefer to adopt the monthly SIP, as they receive their incomes on a monthly basis. Over a year, investors using this mode of investment will buy units at 12 different NAVs, which is significantly lower compared to daily SIPs. Still, monthly SIPs grant investors the advantage of rupee cost averaging.
Daily SIP vs Monthly SIP: Key Differences
The main difference between making sip daily vs monthly is how often investors buy the mutual fund’s units. However, there are some finer details that separate the two. Take a look at daily sip vs monthly sip below:
| Factor | Daily SIP | Monthly SIP |
| Frequency of Investment | Investment is made whenever the market is open, that is, each trading day. | Investment is made once a month on a predetermined date. |
| Number of Transactions | There are around 252 days a year when the market is open, so in a month there are around 21 transactions made. | A single transaction is made in a month. |
| Convenience | Not very convenient as transactions are frequent. | Monthly SIPs are much easier to manage due to lower investment frequency. |
| Rupee Cost Averaging | As investors buy units at more NAVs, the averaging is finer. | Monthly SIPs also benefit from rupee cost averaging, but they are not as finely tuned. |
Benefits of Daily SIP
The shared benefits of daily sip and monthly SIP include the built-in diversification and professional management one enjoys when investing in mutual funds. Furthermore, both types of SIPs grant investors the convenience and affordability to get started with small amounts. They instil a habit of regular saving and investing, which is crucial for long-term financial success. Daily SIPs in particular take better advantage of rupee cost averaging, as investors make a much higher number of contributions compared to other types of SIPs. In highly volatile situations, this can lead to higher returns as well.
Benefits of Monthly SIP
Monthly SIPs are the most popular ones amongst Indian investors and for good reasons. Firstly, fewer transactions during the year mean that investors end up paying less in transaction fees. Since each SIP is considered a separate investment, investors also don’t have to deal with the complexity of managing, tracking, and maintaining a large number of individual investments, as would be the case with daily SIPs.
Secondly and more importantly, monthly SIPs are aligned with the income cycles of most investors. Investors, especially salaried ones, set their SIP dates close to the month’s start when they receive their salaries. We also tend to make our budgets on a monthly basis, so it becomes convenient to allocate a portion of income for investments at the same time. If we pay our bills and EMIs monthly, it makes sense to align our investments with the same cycle, doesn’t it?
Which Is Better: Daily SIP or Monthly SIP?
Let’s first take an example to analyse the performance of daily SIPs and monthly SIPs over a decade, and see how their returns compare. If we look at the Nifty 50 total return index from 2013 to 2023, both daily and monthly SIPs delivered identical returns of 12.44%, while for the Nifty Small Cap 250 total return index, daily SIPs provided a slightly higher return of 13.31% compared to 13.29% for monthly SIPs.
In this case, the results show that, over the long term, the difference in returns between daily and monthly SIPs is minimal. In most situations, even when daily SIPs have a slight edge, the gain is negligible and doesn’t make a meaningful impact.
Now since returns are not the decisive factor, to declare which one is better, it’s more practical to focus on other aspects such as convenience, transaction volume, and tax implications. In these areas, daily SIPs start to stumble. Monthly SIPs align very well with the income cycles of most people. They are also easier to manage and attract lower transaction fees. Daily SIPs on the other hand involve higher transaction volume, which not only attracts a higher cost but also makes recordkeeping and tax calculations more complex.
Remember that each SIP counts as a separate investment and is treated individually for taxation purposes. This means that with daily SIPs, you’ll have to manage and track a huge number of transactions, which can be cumbersome, to say the least.
Another big disadvantage of daily SIPs is that not many mutual funds offer them. Say you find a fund that aligns with your financial goals, risk tolerance, and investment horizon very well. It has exhibited consistent returns and the fund manager is well-reputed in the industry.
However, it does not allow you to invest through daily SIPs. In such a case would it be wise to compromise on your chosen fund just to invest daily? Would you be willing to invest in a different fund that isn’t as consistent or suitable but does allow you to invest via daily SIPs? The answer to that is that it’s almost never worth compromising on the quality of the fund. Doing so means you are undermining your long-term financial goals, as investment strategy alignment and the consistency of returns over time play a far bigger role in creating wealth than small differences in investment frequency.
So when the question is daily sip vs monthly sip which is better of the two, the answer is clearly in favour of monthly SIPs, as they are less of a hassle and generate almost identical returns over the long run. That, however, doesn’t mean that daily SIPs are without any merit. Daily SIPs can still be a good option for investors such as business owners or individuals who want to take full advantage of volatile market conditions. Because daily SIPs are hindered by so many disadvantages, investors should ask themselves whether the benefits of daily SIPs justify the added burdens.
Conclusion
Since there isn’t much difference between the returns of these SIP modes, monthly SIP comes out as the winner for most investors. It aligns well with the income cycles of most investors and demands much less effort on the investor’s part. The recordkeeping, taxation, and fee burdens weigh heavily on daily SIPs, which leans the daily sip vs monthly sip matchup in favour of the latter.
How successful your investment is, however, depends more on other factors, such as the consistency of the fund and how closely it aligns with your financial goals, risk tolerance, and investment horizon. Both methods allow you to harness the power of compounding and rupee cost averaging, and develop a habit of regular investing. In the long run, this discipline and suitability are more important than the specific frequency of your SIP.
