A systematic investment plan (SIP) is an easy way to invest in the mutual funds of your choice. You invest a fixed sum in the mutual funds of your choice at regular intervals instead of making a lump sum investment. The frequency of these SIP investments can be daily, weekly, monthly or even quarterly.
The most common investment frequency is once a month, but many mutual fund schemes also support weekly or daily investments. To identify which SIP investment frequency works best for your financial goals and requirements, it’s essential to understand how monthly and daily SIPs compare.
A monthly SIP strategy involves making monthly investments in the mutual fund schemes of your choice. You can manually invest in the fund each month, or you could set up an auto-debit mandate to automate your SIP investments. In a daily SIP strategy, you need to manually invest the requisite amount in the fund of your choice on every trading day.
To figure out which investment frequency works best for you, let’s compare the two strategies in terms of their returns, tax implications and convenience.
The primary consideration for choosing between monthly and daily SIPs is the returns they offer. If one strategy has historically offered better returns than the other, it may be beneficial to choose the more rewarding SIP frequency. However, here’s how the extended internal rate of return (XIRR) for monthly, weekly and daily SIPs compare for some of the top mutual funds in different categories.
| Mutual Fund Scheme | Monthly SIP XIRR | Weekly SIP XIRR | Daily SIP XIRR |
| Parag Parikh Flexi Cap Fund | 17.95% | 17.95% | 17.96% |
| Canara Robeco Emerging Equities Fund | 16.90% | 16.89% | 16.90% |
| SBI Contra Fund | 16.83% | 16.85% | 16.88% |
| Nippon India Multi Cap Fund | 15.19% | 15.21% | 15.23% |
| Franklin India Prima Fund | 14.39% | 14.39% | 14.40% |
| Mirae Asset Large Cap Fund | 13.76% | 13.75% | 13.76% |
| ICICI Prudential Focused Equity Fund | 13.40% | 13.41% | 13.43% |
| Aditya Birla Sun Life Small Cap Fund | 13.35% | 13.35% | 13.35% |
| HDFC Capital Builder Value Fund | 12.86% | 12.86% | 12.87% |
| Axis Long-Term Equity Fund | 12.50% | 12.50% | 12.51% |
Note: XIRR returns as on June 3, 2023
As the table above shows, the XIRR for monthly, weekly and daily SIPs are comparable and almost similar. So, in terms of the historical returns offered, monthly and daily SIPs have no significant difference.
Monthly SIPs are highly convenient for most people. This is particularly true if you are a salaried investor because your income will be credited on a monthly basis. Alternatively, it may also be convenient if you are self-employed because most businesses have monthly billing cycles. What’s more, many leading banks allow investors to set up monthly auto-debit mandates so you can automate your monthly SIP investments.
Daily SIPs, on the other hand, may not be as convenient as monthly investments. You may have to manually invest in the fund of your choice on each trading day. Additionally, you also need to have the required amount of liquid funds available daily.
When you redeem your mutual fund investments, you need to pay income tax on the long-term or short-term capital gains, if any. If you have invested via SIPs, you need to calculate the capital gains for each batch of mutual fund units purchased. Naturally, this is far easier for monthly SIPs than for daily SIPs.
When you invest via SIPs on each trading day, you have hundreds of transactions to track and account for at the time of filing your income tax returns. This additional effort is not substantiated by any significant improvement in returns. So, while monthly SIPs are simpler, investing more frequently can make the process more complex without any corresponding benefits.
Monthly SIPs offer the following advantages for investors.
Monthly SIPs inculcate the habit of disciplined savings as they require a fixed investment at regular intervals. This approach is particularly beneficial if you struggle to save consistently.
By investing a fixed amount regularly, you can buy more units when prices are low and fewer when prices are high. This averages out the cost of investment over time.
Monthly SIPs are convenient and easy to manage as they can be auto-debited from your bank account. This reduces the hassle of manual investments.
Investing monthly allows your money to start compounding earlier. This could potentially lead to higher returns over the long term.
Daily SIPs, though less common than monthly SIPs, offer some unique advantages, too.
Daily SIPs allow you to invest more frequently. This may improve the benefits of rupee cost averaging as you take advantage of daily market fluctuations.
Investing daily means your money starts compounding sooner on each investment. This may lead to greater wealth accumulation over time.
With daily investments, the risk of entering the market at the wrong time is significantly reduced because your investment is spread across many days.
Daily SIPs provide more control over your investment. This is because you can adjust the investment amount more frequently based on your financial situation.
Here is an overview of the key differences between monthly and daily SIPs.
| Particulars | Monthly SIPs | Daily SIPs |
| Investment Frequency | Once a month | On each trading day |
| Cash Flow Management | Requires less frequent cash flow planning | Requires more meticulous management |
| Rupee Cost Averaging | Averages out the investment costs over a month | Potentially smoother averaging due to daily market fluctuations |
| Compounding Effect | Compounding occurs monthly | Faster compounding due to daily investments |
| Risk of Timing the Market | Reduces risk but less frequently than daily SIPs | Further reduces risk due to more frequent investments |
| Convenience | Generally more convenient and manageable | Requires closer monitoring and management |
| Record-Keeping | Simpler, with fewer transactions to track | More complex due to the high volume of transactions |
| Taxation | Might be simpler for tax calculations due to fewer transactions | The high frequency of transactions might complicate tax calculations |
The choice between monthly and daily SIPs relies entirely on your investment goals, financial capacity and risk profile. However, to make the decision easier, let’s examine which strategy may be more suitable for you.
Monthly SIPs may be ideal if:
Daily SIPs may be suitable if:
The bottom line is that monthly and daily SIPs each cater to specific kinds of investors. Monthly SIPs are simpler and align better with regular income cycles, making them ideal for new investors, long-term savers, and those who prefer a more hands-off approach. Daily SIPs, on the other hand, cater to investors who are actively involved in market dynamics, have a higher risk tolerance, and want to capitalise on daily market fluctuations for finer rupee cost averaging.
Ultimately, the choice between monthly and daily SIPs should be guided by your individual financial goals, risk appetite, cash flow situation and investment style. To start your SIP, open a demat account with Angel One from the comfort of your home to enjoy a seamless investing experience.
Disclaimer: The article is for educational purposes only. Investment in securities is subject to market risk. Read all related documents carefully before investing.
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