This question comes to every SIP investor’s consideration – should I opt for a daily SIP or a monthly SIP frequency? In this post, we shall look at this battle from a performance and practicality standpoint. Let the fight begin!
While monthly SIP is the norm, most fund houses offer a daily frequency SIP aswell. This is a marketing ploy of encouraging users to promote the habit of investing a small sum daily
On a lighter note, this must be making the payment gateway companies very happy. Payment gateways charge ₹5 to ₹10 for every transaction irrespective of the amount. SIPs start from as low as ₹100. A high payment gateway cost with low SIP amount hurts the economics of mutual fund companies.
The real question is – do daily SIPs offer a) better returns and b) lower volatility as compared to monthly SIPs?
Logically, investing daily tracks daily price movements and hence should provide a better averaging. One of the more important benefits of SIP is to provide adequate volatility protection through averaging. Returns in the long-run for daily SIP versus monthly SIP is a completely different matter.
Performance Analysis of Daily SIP versus Monthly SIP
I am borrowing a research that was done by PersonalFN. The study was done for a 5-year period starting March 2013 spread across 147 equity-oriented schemes.
Over 5 years, daily SIPs comes to 1,225 daily instalments while monthly SIPs is a much manageable 60 monthly instalments. The PersonalFN research discovered that –
- Monthly SIPs generated an outperformance of just 0.41% over daily SIPs
- The average XIRR generated was 18.8% in case of monthly SIPs and 18.7% for daily SIPs
I maintain that an investor should opt for monthly SIP over the daily SIP because –
- Managing daily SIP is extremely inconvenient. Imagine having over 1,200 entries in your annual bank account statement for every SIP. And then having to calculate taxes. It’s a mess.
- Monthly SIPs offer better tracking and helps you plan better. This coincides with how you receive your income i.e. once a month. Consistency here will help you plan your finances better and control over your financial cashflows.
Additional Resources You Might Like
- 5 Steps process on how to start SIP investment online
- The best SIP plans to invest in 2020
- Top SIPs for long term investing
- Complete Investor Guide to Building Wealth with SIP
- SIP Calculator