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Finding the Perfect SIP Interval : Daily Vs Monthly

mutual fundmutual fund accountmutual fund investmentSIP
09 Sep 20246 mins readBy MOFSL

A Systematic Investment Plan is one of the most convenient ways to invest your money in a Mutual Fund scheme. All you have to do is have a dematerialised account and you can start an SIP with as low as Rs 100.

With a SIP, you invest small amounts consistently over time, rather than making a large, one-time investment, which can help you achieve higher returns in the long run.

In this article, we are going to find out the best interval for you to invest your money and where you can generate the highest returns.

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When deciding between daily and monthly SIPs, it's essential to understand which option aligns best with your financial goals and lifestyle.

The frequency of SIPs— daily, weekly, or monthly—has little impact on long-term returns. Daily SIPs can be harder to manage compared to monthly SIPs.

If you receive a regular monthly salary, a monthly SIP is more convenient and allows you to align your investment dates with your salary deposit. Similarly, if you earn daily wages, a daily SIP might suit your cash flow better.

Key Considerations When Choosing a SIP Frequency

Market Impact: Daily SIPs in mid-cap and small-cap funds can lead to higher volatility. If the market rises, daily SIPs might yield better returns, but if the market declines, they could result in lower returns compared to monthly SIPs. Large-cap funds offer more stable returns with daily SIPs. 

Fund Management: The success of daily SIPs often depends on how efficiently the fund is managed. Before opting for daily SIPs, consider the mutual fund’s credibility and have a proper investment strategy

Risk and Returns: Daily SIPs can reduce losses by spreading investments more granularly, but this also means the potential returns might be lower than those from monthly SIPs.

Income Frequency: Daily SIPs are better suited for you if you earn daily earnings, such as business owners or freelancers. Monthly SIPs align better with those receiving a monthly salary. For salaried employees, it's advisable to set the SIP date close to the salary credit date to ensure sufficient funds in the account.

Diversification: Daily SIPs provide diversification across days but broader financial portfolio diversification is recommended. If your fund is not volatile, monthly SIPs may offer higher returns compared to daily SIPs.

Ease of Monitoring: Monthly SIPs offer more straightforward tracking and planning. Daily SIPs can be more challenging to monitor due to multiple entries in your account, making it tedious to keep track of all your investments and returns.

Why Daily SIPs can be challenging

Opting for daily or weekly SIPs comes with its own set of challenges. Here are 3 major problems that you will have to undergo:

No Standing Instruction for Daily SIP

Most broking platforms support monthly SIPs and don't have the option to set up any standing instructions for daily or weekly ones. If you choose daily or weekly SIPs, you will be responsible for manually executing them.

This process is more challenging and will end up costing you more time as well as money.

Difficulty in Record Keeping

Another issue is the increased burden of recordkeeping. With monthly SIPs, you'll have 12 entries per year per fund. For weekly SIPs, that number jumps to 52 entries per year per fund. And with daily SIPs, the number of entries becomes significantly higher, making it a complex task.

Difficulty in Tax planning

Finally, taxation can become complicated with daily or weekly SIPs. Each SIP installment is treated as a separate investment and must be tracked individually for tax purposes. This can increase your workload without a corresponding increase in benefits.

While the fund house may provide you with a consolidated statement, you'll still be dealing with multiple PDFs, each potentially spanning multiple pages, which can be overwhelming.

In conclusion, whether you choose daily or monthly SIPs depends on your financial situation, income frequency, and investment goals. Monthly SIPs tend to offer better planning and monitoring, while daily SIPs may suit those with a more granular approach to investing.

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Disclaimer: The stocks, companies, or financial instruments mentioned in this blog are for informational purposes only and should not be considered as investment recommendations. It is advised to consult with your financial advisor before making any investment decisions. Investment in securities markets are subject to market risks, read all the related documents carefully before investing. Investors are strongly encouraged to carefully read the risk disclosure documents prior to participating in market-related investments or trading activities. Due to the volatile nature of financial markets, no guarantees can be made regarding investment returns. Motilal Oswal Financial Services Ltd. does not offer any assured returns on market-linked securities. Please note that past performance of stocks or indices is not indicative of future results.
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