SIP is a systematic investment plan which not only helps to bring discipline in investment, but also helps to chalk out the short term market fluctuations. Mutual funds offer SIPs of various durations.
Mutual funds offer the facility of investing in mutual funds through the systematic investment plan or SIP. You may invest in mutual funds through (I) Lump-sum investments (ii) Systematic investment plan (SIP)
Are you confused about the interval of SIPs one should opt for? Please read on for the clarity.
Understanding the meaning of SIP
SIP is a systematic investment plan that brings discipline to your investments. SIP is a facility offered by mutual funds that allow the investor to invest a fixed amount of money periodically in a mutual fund scheme.
SIP is usually a better investment option than a lump-sum investment as it utilises market volatility to average out the cost of the investment. SIP would help you stagger your investment over intervals which makes them safer than lump-sum investments. SIP will enable the investor to buy more mutual fund units when the stock market corrects or crashes and lesser units when markets rise.
It helps you average out the cost of purchase of the mutual fund units over some time. This method has become widely popular as it uses the technique of ‘rupee cost averaging’ to maximise returns with time. Also, by consistently investing in equity funds through SIPs, you get the benefit of power of compounding, which gives a return on your returns. The discipline that SIP brings and maximising return would help the investor build a large corpus in the long-run, even with a small investment.
SIP is a systematic investment plan that brings discipline to your investments. SIP is a facility offered by mutual funds that allow the investor to invest a fixed amount of money periodically in a mutual fund scheme.
SIP is usually a better investment option than a lump-sum investment as it utilises market volatility to average out the cost of the investment. SIP would help you stagger your investment over intervals which makes them safer than lump-sum investments. SIP will enable the investor to buy more mutual fund units when the stock market corrects or crashes and lesser units when markets rise.
It helps you average out the cost of purchase of the mutual fund units over some time. This method has become widely popular as it uses the technique of ‘rupee cost averaging’ to maximise returns with time. Also, by consistently investing in equity funds through SIPs, you get the power of compounding benefit, which gives a return on your returns. The discipline that SIP brings and maximising return would help the investor build a large corpus in the long-run, even with a small investment.
SIPs are available for different durations as mentioned below.
Types of SIPs based on tenure
SIPs can be classified based on their tenure; generally, monthly and weekly SIPs are popular modes of investments.
- Monthly SIP: A fixed sum is invested monthly in the mutual fund. These are the most commonly used types of SIPs.
- Weekly SIP: A fixed sum is deducted every week and put in the mutual fund scheme.
- Daily SIPs: A fixed sum is invested daily in the mutual fund.
Which type of SIP would be beneficial for you?
Studies have shown that SIP frequency, be it daily, weekly or monthly, has no major impact on returns. For instance, the difference in return between daily, weekly or monthly SIPs is negligible over time. However, you could struggle to monitor your investment if you opt for the daily SIP over the monthly SIP. You would be better off going for monthly SIPs over daily SIPs if you get a fixed salary each month. You could opt for SIP dates close to your salary date for convenience.
You may focus on selecting the right mutual fund over the best fund to achieve your investment objectives depending on your risk tolerance. You could consider SIP as a tool for investing in mutual funds. You must look at picking the right equity fund and investing through daily or monthly SIP (as per convenience) to maximise return over a period. However, you could opt for daily SIP if you earn daily wages.
Points to be considered before choosing SIP type:
- Daily SIPs would get impacted for the funds that have invested in mid-cap and small-cap stocks. Usually, small-cap funds are considered volatile, and day-to-day investing through SIP in small-cap funds would lead to higher volatility than monthly SIPs. Accordingly, if your daily SIPs are getting invested when the market is rising, you may observe higher returns. If the market is declining, then the daily SIPs would give you lower returns compared to monthly SIPs. However, you can expect stable returns when investing in Large-cap funds through daily SIPs.
- The growth prospects of daily SIPs are usually dependent on the efficiency of fund management. Hence, before investing in the daily SIPs, one should consider the particular mutual fund’s credibility and strategy.
- Daily SIPs can limit the losses as the investment is made in granular portions; however, as the risk is minimised, the returns are lower than the return offered by monthly SIPs.
- Daily SIPs are better for individuals who are into business or any profession that earns daily wages. Whereas for people earning a monthly salary, monthly SIP is a better option. The SIP date should be selected closer to the date of salary credit for salaried employees as you have a sufficient balance in your bank account. If the SIP instalment doesn’t go through for three consecutive months, then the AMC cancels the SIP, and the bank can penalise you.
- Daily SIPs will diversify the investment. Although, you should opt for diversifying your entire financial portfolio. The returns will be average if the purchase price is averaged. But, if the fund is not volatile, the returns of monthly SIPs will be high as compared to daily SIPs.
- Monthly SIPs offer better investment planning opportunities, as you can monitor the investment in a better way. However, you could struggle to monitor investments if you put money in mutual funds through the daily SIP.
- Daily SIPs make it very tedious to track investments and returns. Also, you will have multiple entries of purchase of the SIPs in your account, making it difficult to track all assets in one go.
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