Does Daily, Weekly, or Monthly SIP Make a Difference in Returns? Which One Should You Choose?
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Systematic investment plans (SIPs) are the go-to mode of investments in mutual funds for most retail investors. In April 2024, the number of SIP accounts stood at 8.70 crores
In April 2024, the monthly inflows through SIPs reached Rs. 20,371 crores, an all-time high. In the long run, disciplined investment through SIPs has the potential to create wealth for investors. So, will it matter if the frequency of the SIP is changed from monthly to weekly or even daily? Will it result in higher returns? In this article, we will explore the returns given by daily, weekly, and monthly SIPs and which is appropriate.
Returns From Daily, Weekly, and Monthly SIPs
Before we look at the returns, let us understand how a daily and weekly SIP works. In a daily SIP, a specified amount will be debited from your bank account daily (on trading days), and the equivalent units of the mutual fund scheme will be credited to your folio. Similarly, in a weekly SIP, a specified amount will be debited from your bank account on the specified day of the week (4 to 5 times a month). Equivalent units of the mutual fund scheme will be credited to your folio.
The belief among some investors is that a daily or weekly SIP gives better averaging than a monthly SIP. Hence, a daily or weekly SIP may result in better returns. While that is the belief among some investors, let us look at what the actual data says.
Let us look at the returns of SIPs with various frequencies in the Nifty 50 Index. If an individual invested over the past decade (2013-2023), the returns would be as follows.
|
SIP Frequency |
Nifty 50 Index Returns |
|
Daily |
12.44% |
|
Weekly |
12.45% |
|
Monthly |
12.44% |
(Source: YouTube)
Note: The above data is for investments done over a 10-year period, from 1st April 2013 to 1st April 2023.
The above table shows, there is hardly any difference in the returns from a daily, weekly, and monthly SIP.
While the above returns are for a specific 10-year investment period, let us look at the data over a 10, 15, and 20-year period. If an individual invested in the Nifty 50 with SIPs of various frequencies, the returns will look as follows.
|
Investment Horizon |
Daily |
Weekly |
Monthly |
|
10 years |
13.26% |
13.27% |
13.23% |
|
15 years |
12.46% |
12.46% |
12.41% |
|
20 years |
13.99% |
13.99% |
14.00% |
(Source: Fundsindia)
Note: The 10-year investment period is from October 2012 to September 2022, the 15-year investment period is from October 2007 to September 2022, and the 20-year investment period is from October 2002 to September 2022.
As seen in the above table, even over different investment tenures, there is hardly any difference in the SIP returns irrespective of the frequency (daily, weekly, or monthly).
Let us look at the returns of SIPs with various frequencies in the Nifty Midcap 150 Index and the Nifty Smallcap 250 Index.
|
SIP Frequency |
Nifty Midcap 150 Index Returns |
Nifty Smallcap 250 Index Returns |
|
Daily |
16.35% |
13.31% |
|
Weekly |
16.36% |
13.32% |
|
Monthly |
16.32% |
13.29% |
(Source: YouTube)
Note: The above data is for investments done over a 10-year period, from 1st April 2013 to 1st April 2023.
As seen in the above table, there is hardly any difference in the SIP returns of various frequencies in the Nifty Midcap 150 and Nifty Smallcap 250 indices. As seen in the earlier section, the observations are similar to SIPs with various frequencies in the Nifty 50 Index.
To conclude, it doesn't matter whether you choose the SIP frequency as daily, weekly, or monthly. The returns are in a similar range. So, while some investors believe that daily or weekly SIP may give better returns, the actual data doesn't say so.
Factors to Consider for the Frequency of SIPs
As seen in the above section, the returns show there is not much of a difference. So, what should be the frequency of your SIP? While all AMC/platforms allow you to do a monthly SIP, few of them allow you to do weekly SIPs, and even fewer of them allow daily SIPs. While deciding the SIP frequency, consider the following factors.
1) Time and Effort
If you have to do a weekly or daily SIP, and if the platform doesn’t allow it, you will have to do it on your own. You will have to remember the weekday for the weekly SIP. For a daily SIP, you will have to do it every day. That will involve a lot of time and effort on your part.
2) Record keeping
With a monthly SIP, you will have only one transaction per SIP per month. So, 12 transactions in a year. However, with a weekly SIP, you will have 52 transactions in a year. With a daily SIP, the number of transactions will multiply significantly in a year. So, the higher the SIP frequency, the higher the number of transactions, the higher the time and effort spent on record-keeping, and the cluttered will be your bank and mutual fund folio statements.
3) Taxation
Each SIP instalment will be treated as a separate investment to calculate capital gains. With a weekly or daily SIP, considering the number of transactions, the calculation of capital gains will be a complex process.
Based on the above factors, doing a weekly or daily SIP complicates things without giving any meaningful additional returns than a monthly SIP.
What Should Be the Frequency of Your SIP?
Ideally, you should keep the frequency of your SIP as monthly. There is not much of a difference in returns; there is less time and effort required to manage it as well as for record keeping, the calculation of capital gains is relatively simplified, etc.
SIPs Are Your Gateway to Financial Freedom
So, you have decided on the frequency of your SIP. Now, it is time to implement it and get started with your SIPs. Most people earn a monthly salary. Ideally, keep the monthly SIP date immediately a day or two after your salary date. As a result, your SIP investments will be done a day or two after your salary is credited to your bank account. Once your investments are taken care of, you can spend the remaining income on your needs and wants.
You may increase the monthly SIP investment amount on an annual basis as your annual income grows. You can do that by opting for a step-up SIP. It allows you to increase the monthly SIP amount by a specified percentage or an absolute amount. Long-term SIPs can help you achieve your financial goals. They can be your gateway to financial freedom.
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