Mutual funds as an investment option are gaining popularity because of their simplicity in creating wealth in the long run. There are two ways of investing in a mutual fund: lump sum and SIP. However, investors often get confused between a daily and a monthly SIP.
In today’s blog post, we will give you an overview of which one is better: daily SIP or a monthly SIP.
What is Daily SIP?
A daily sip is a mode of investing in a mutual fund in which an investor invests a particular amount on a daily basis instead of a monthly or quarterly basis. It spreads your investment evenly throughout the business days, which generally range from 20 to 22 days in a month. Daily SIP increases the benefit of rupee cost averaging. Start your investing journey with Pocketful for a smooth and disciplined experience.
Benefits of Daily SIP
The key benefits of daily SIP are as follows:
- Rupee Cost Averaging: Through daily SIP, one can get the enhanced benefit of rupee cost averaging because the purchases through SIPs are executed daily.
- Market Timing: As the investments are spread across the trading days, the impact of market volatility will be minimised.
- Correction: In case of market correction, daily SIP invests more frequently at a lower NAV, which allows an investor to accumulate more units.
Disadvantages of Daily SIP
The key disadvantages of daily SIP are as follows:
- Less Convenient: Daily SIP includes numerous transactions during a month, which makes it difficult for a retail investor to track, as they prefer simplicity.
- Limited Availability: Not every mutual fund scheme offers a daily SIP option, as investors lack flexibility.
- Cash Flow: Maintaining regular cash in one’s bank account is difficult and makes it inconvenient for a retail investor who receives a salary as a major source of income.
What is a Monthly SIP?
A monthly SIP is a systematic mode of investment in a mutual fund in which an investor invests a fixed amount every month in a scheme on a pre-defined date. It is one of the most common modes of SIP used by a retail investor. The units are allotted based on the applicable date of the NAV on which the SIP is deducted.
Read Also: SIP vs Lump Sum: Which is Better?
Benefits of Monthly SIP
The key benefits of monthly SIP are as follows:
- Easy to Manage: As the SIP is deducted only once a month, therefore for a retail investor to manage and track the SIP investment.
- Acceptance: Monthly SIPs are offered by all the asset management companies; hence, offering a wide range of choices to select from schemes.
- Flexibility: Monthly SIPs can be paused, stopped or increased at any point in time depending upon the investor’s need.
Disadvantages of Monthly SIP
The disadvantages of a monthly SIP are as follows:
- Less Effective: In case of a highly volatile market, the monthly SIPs are less effective as they do not capture the NAV movements.
- Opportunity: Monthly SIPs can miss the opportunity to buy more units in case of a market correction.
- Active Investors: Investors who seek active averaging or do not want to miss any opportunity related to any market correction can consider a daily SIP instead of a monthly SIP.
Difference between Daily and Monthly SIP
The key differences between daily and monthly SIP are as follows:
| Particular | Daily SIP | Monthly SIP |
|---|---|---|
| Frequency | It is deducted on every trading session of a month. | Monthly SIPs are deducted only once a month. |
| Market Timing | Daily SIPs can time the market in a better manner. | Monthly SIPs time the market less efficiently. |
| Convenience | It is less convenient. | Monthly SIPs are very convenient. |
| Tracking | It is difficult to track daily SIP. | Comparatively, it is very simple to track a monthly SIP. |
| Availability | Daily SIPs have limited availability across fund houses. | Monthly SIPs are widely available and are offered in every mutual fund scheme. |
| Rupee Cost Averaging | It offers a higher benefit of rupee cost averaging. | It offers slightly less benefit of rupee cost averaging than daily SIPs. |
| Allotment of NAV | NAVs are allotted daily. | In a monthly SIP, NAVs are allotted once a month. |
Best Mutual Funds for SIP
| Funds | Expense Ratio (%) | AUM (Cr) | 1 Yr Ret (%) | 3 Yr Ret (%) | 5 Yr Ret (%) | Latest NAV | 52-Week High NAV | 52-Week Low NAV | Exit Load (Period) | Minimum SIP Amount (INR) |
|---|---|---|---|---|---|---|---|---|---|---|
| HSBC Global Emerging Markets Fund | 1.55 | 306 | 40.84 | 17.03 | 6.01 | 25.98 | 26.05 | 17.44 | 1.00 (365) | 1000 |
| Franklin Asian Equity Fund – Regular Plan | 2.54 | 297 | 22.57 | 12.2 | 3.1 | 35.32 | 35.66 | 25.9 | 1.00 (365) | 500 |
| Quant BFSI Fund – Regular Plan | 2.32 | 729 | 22.16 | — | — | 19.27 | 19.27 | 13.77 | 1.00 (15) | 1000 |
| ICICI Prudential Nifty Auto Index Fund | 0.94 | 176 | 21.08 | 30.24 | — | 21.88 | 22.09 | 15.61 | — | 1000 |
| Tata Nifty Auto Index Fund – Regular Plan | 1.11 | 102 | 20.77 | — | — | 12.44 | 12.56 | 8.89 | 0.25 (15) | 100 |
Which one is better?
Investors who want consistent investment in the market without worrying about the daily bank balance can consider a daily SIP as an investment mode. On the other hand, those who want simplicity and convenience in investing can opt for a monthly SIP. Both of them offer rupee cost averaging benefits and are suitable for long-term wealth creation.
Read Also: SIP in Stocks vs SIP in Mutual funds?
Conclusion
In conclusion, both daily and monthly SIPs are crucial tools for creating wealth in the long run. Daily SIPs are comparatively better than monthly SIPs in terms of rupee cost averaging, as investments are made more frequently. However, for a retail salaried individual, monthly SIPs are a better option, as they are easy to manage and straightforward. However, both of them are suitable only if the investments are made in a disciplined manner. Also, it is advisable to consult your investment advisor before investing.
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Frequently Asked Questions (FAQs)
Which is better daily or a monthly SIP?
Over a longer period of time, the difference in returns of daily and monthly SIPs is negligible. Hence, anyone can choose between them depending on their needs.
Do all funds offer daily SIP?
No, not all mutual fund schemes offer daily SIP. There are very few funds available in the market in which one can invest through a daily SIP.
Can I switch from a monthly SIP to a daily SIP?
Yes, you can easily switch from a monthly SIP to a daily SIP by stopping the monthly SIP and starting a new daily SIP at any time.
What is a daily SIP?
Daily SIP is a mode of investment in a mutual fund in which a fixed amount of money is deducted from the investor’s bank account daily or on a trading day and invested in the designated scheme or fund.
Are there any extra charges for a daily SIP?
No, there are no additional charges for any daily SIP. The fund expense ratio remains the same for both monthly and daily SIP.
