Daily SIP vs Monthly SIP: A Comprehensive Comparison of Returns and Benefits

Table of Content:

• Introduction

• Understanding the Meaning of SIP

• Types of SIPs Based on Tenure

• Returns of Daily vs Weekly vs Monthly SIP

• Benefits of Monthly SIPs

• Considerations for Daily SIPs

• Conclusion

Introduction

Investing in mutual funds has become increasingly popular, with investors seeking to grow their wealth over time. One popular investment strategy is the Systematic Investment Plan (SIP), which allows investors to make regular contributions to mutual funds. Regular contributions mean that investors can determine the frequency of their investments and invest at specific time intervals. The frequency of SIPs can either be monthly, weekly, or even daily. In this article, we will compare daily SIPs and monthly SIPs, exploring their returns and benefits.

What is SIP

Before we dive into the details, let's understand what SIPs are and why investors favour them. SIP stands for Systematic Investment Plan. It is a disciplined and structured approach to investing in mutual funds. With SIPs, investors regularly contribute a fixed amount of money in a mutual fund scheme. This approach helps average the investment cost and mitigate the Impact of market volatility. SIP also instills a sense of discipline in investors, enabling them to allocate a fixed amount of their earnings to build a substantial corpus over the long run.

To understand more about the working principle of SIP, you can check out the SIP calculator and experiment with the calculator to know how much investment can yield and how much returns.

Types of SIPs Based on Tenure

SIPs can be classified based on the frequency with which they are made:

Monthly SIP: This is the most common type of SIP, in which a fixed sum is invested in a mutual fund scheme every month. Monthly SIPs align well with individuals' monthly income cycles, making them a convenient and popular choice.

Weekly SIP: With weekly SIPs, a fixed sum is deducted and invested in a mutual fund scheme every week. This option provides investors with more frequent investment intervals, allowing for greater rupee cost averaging and utilising market fluctuations to the fullest extent.

Daily SIP: Daily SIPs involve daily investing a fixed sum of money in a mutual fund scheme. While daily SIPs offer the most frequent investment intervals, they also come with their considerations, which we will explore further.

Returns of Daily vs Weekly vs Monthly SIP

To determine whether the frequency of SIPs significantly impacts returns, let's examine the historical returns of daily, weekly, and monthly SIPs in various mutual fund schemes over the past ten years. We will consider the returns of the NIFTY 50 TRI, NIFTY Midcap 150 TRI, and NIFTY Smallcap 250 TRI.

Scheme	Daily SIP	Weekly SIP	Monthly SIP
NIFTY 50 TRI	12.44%	12.45%	12.44%
NIFTY Midcap 150 TRI	16.35%	16.36%	16.32%
NIFTY Small Cap 250 TRI	13.31%	13.32%	13.29%

The data reveals minimal difference in returns between daily, weekly, and monthly SIPs. Over time, the returns remain primarily consistent, regardless of the frequency of investments. This suggests that a monthly SIP is sufficient to reap the benefits of cost averaging and long-term wealth accumulation.

Source: ET Money

Benefits of Monthly SIPs

Monthly SIPs offer several advantages, making them an attractive investment option for many individuals.

• Convenience: Monthly SIPs align with the monthly income cycle, making it easier to plan and allocate funds towards investments. This convenience helps maintain consistency in investment contributions.

• Reduced Record-Keeping: With monthly SIPs, investors only need to track 12 entries per year per investment folio, simplifying record-keeping and minimising administrative tasks. This allows investors to focus more on their investment strategy and overall financial planning.

• Tax Efficiency: Monthly SIPs provide better tax efficiency than daily or weekly SIPs. Each SIP is considered a separate investment, so daily or weekly SIPs can complicate tax calculations and reporting. Monthly SIPs streamline the tax process, reducing the administrative burden.

• Disciplined Investing: Monthly SIPs instil discipline and consistency in investors by investing on a fixed date each month. This disciplined approach helps investors avoid impulsive investment decisions based on short-term market fluctuations.

Considerations for Daily SIPs

While daily SIPs offer the advantage of more frequent investment intervals, several factors should be considered before opting for this approach.

• Increased Administrative Burden: Daily SIPs require more frequent actions and record-keeping, as investors need to track and manage their investments daily. This can be time-consuming and may lead to higher administrative overhead.

• Volatility of Small Cap Funds: Small Cap funds' daily SIPs are known for their higher volatility, which can result in more significant return fluctuations. Before opting for this frequency, investors should carefully assess the risk associated with daily SIPs in smallcap funds.

• Limited Availability: Most investment platforms primarily offer monthly SIPs, making it more convenient and specific for investors to opt for this frequency. Daily SIPs may not be widely available, and investors may need to manage their investments to achieve daily intervals proactively.

Feature	Daily SIP	Monthly SIP
Frequency	Daily	Monthly
Investment Timing	Daily, spreading throughout the month	Once a month
Rupee Cost Averaging	Yes	Yes
Flexibility	Lower	Higher
Risk Management	Better risk management due to daily averaging	Good risk management
Transaction Costs	Potentially higher due to more frequent transactions	Lower due to fewer transactions
Behavioral Impact	May feel the pressure of daily debits from bank account	More structured way to manage money
Market Volatility Impact	Susceptible to everyday  market swings	Smoother impact on market volatility
Convenience	Requires more frequent transactions	Requires fewer transactions
Taxation	Complicated effect on taxation	Much easier and manageable tax effects

Conclusion

The frequency of SIPs, whether daily or monthly, has a minimal impact on returns. However, monthly SIPs have proven to be an effective investment strategy, providing the benefits of cost averaging, convenience, and disciplined investing. They align well with the monthly income cycle and offer better tax efficiency. On the other hand, daily SIPs come with an increased administrative burden and may be more suitable for investors with specific requirements or preferences.

In conclusion, it is not the frequency that needs more attention but the consistency and commitment to the decided frequency of SIP investments. Thus, while the frequency of SIP takes the backstage, other factors determine the effectiveness of your SIP investments. 

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FAQs

What is the difference between Daily SIP and Monthly SIP?

A Daily SIP involves investing a fixed sum of money into a mutual fund every day, while a Monthly SIP involves investing a fixed sum once a month. Both strategies allow investors to benefit from rupee cost averaging, but they differ in terms of frequency, convenience, and administrative requirements.

Do Daily SIPs provide higher returns compared to Monthly SIPs?

Which SIP frequency is better for tax efficiency: Daily or Monthly?

Are there any disadvantages to choosing Daily SIPs?