Mutual Fund Daily SIPs: Do You Really Need It? Read This! (2024)

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While investment in mutual funds through Systematic Investment Plans (SIPs) with a monthly frequency was the norm, fund houses even offer a daily and quarterly frequency under SIPs.Which is the best SIP frequency?

Last month, the LIC Mutual Fund offered investors the option to invest in mutual funds through Daily SIP with as low as Rs 300 per day. This facility is available in five equity schemes viz. LIC MF Equity Fund, LIC MF Growth Fund, LIC MF Midcap Fund, LIC MF Infrastructure Fund, LIC MF Index Fund and two hybrid schemes viz. LIC MF Balanced Fund and LIC MF Monthly Income Plan.

“Through Daily SIP, the fund house is trying to promote the habit of investing daily and the aim is to create wealth through investing daily with a minimum sum of Rs 300 across 22 working days, which will lead to a monthly investment of Rs 6,600,” the fund house explained.

But do Daily SIPs truly benefit investors or even help negotiate volatility better than Monthly SIPs in mutual funds?

According to LIC Mutual Fund, “Daily SIP will further help in beating the market volatility and benefit our investors from rupee cost averaging.”

Logically, investing daily will certainly help in averaging your investment cost better, as you will be making many more transactions over the period. But, will it result in a significant difference in returns over the long term? At the end of the day, that is what matters.

PersonalFN crunches the numbers to find out…

Daily SIPs vs Monthly SIPs

Over the five-year period starting from March 1, 2013, PersonalFN compares the Daily SIP returns with the Monthly SIP returns of 147 equity-oriented schemes.

There were as many as 1,225 daily instalments of Rs 300 each under the Daily SIP section in mutual fund schemes, leading to a total investment of Rs 3.68 lakh approximately.

To make a like-to-like comparison, Rs 6,126 was the instalment for the Monthly SIP spanning 60 months. The investment was made on the 1st of every month. This resulted in a total investment of Rs 3.68 lakh.

Now the results…

On an average, Monthly SIPs generated a value of approximately Rs 2,516 over Daily SIPs. In percentage terms, this works out to an outperformance of just 0.41%.

Under the Daily SIPs and Monthly SIPs, the portfolio value worked out to Rs 5.86 lakh and Rs 5.88 lakh approximately. The average XIRR generated was 18.8% and 18.7% respectively

Daily SIPs did marginally better in terms of XIRR. This is mainly because the monthly investment, made at the beginning of the month, was distributed across the month.

Below is the list of schemes where the difference was the highest between the Monthly SIP returns and Daily SIP returns.

*Please note, this table only represents the funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns.

Below is the list of schemes where the difference was the lowest between the Monthly SIP returns and Daily SIP returns.

In the tables above, high volatility schemes where exposure to small-caps and mid-caps has been the highest resulted in a bigger difference between the Monthly SIPs and Daily SIPs.

If Daily SIPs help in beating the market volatility, why weren't the returns higher?

Well, Daily SIPs do help in averaging out costs better, but this does not necessarily mean that the average cost of investment through Daily SIPs will be lower than Monthly SIPs.

Take for example, at the beginning of the month, the NAV of a scheme is Rs 100. For the Monthly SIP, this is the cost price. If we assume that over the month, the NAV of the scheme gradually rises to Rs 110, the average cost under Daily SIP will naturally be higher than that of the Monthly SIP investment.

However, if the NAV was headed lower, Daily SIPs would have scored better. Hence, the difference in returns is primarily a factor of how the market behaves over this period. But, over the long term, the variation will be insignificant.

During a period where the market was continuously hitting all-time highs, investments through Daily SIPs were gradually made at higher prices, hence the returns suffered marginally.

Thus, if you invest with the expectations that the market will move higher over the long term, Monthly SIPs should be an apt choice.

If you wish to calculate the future value of your Monthly SIPs, use PersonalFN's SIP Calculator.

3 reasons why you should opt for Monthly SIPs over Daily SIPs

As seen in the analysis above, in terms of returns, there is hardly much difference between a Monthly SIP and Daily SIP. The quantum variance in returns will change over different market cycles. Hence, you need to choose an option that is simple and convenient. Here's is where Monthly SIPs score over Daily SIPs.

1. Convenience – Over a five-year period, there will be over 1,200 Daily SIP transactions. This compares to just 60 transactions through a Monthly SIP. Imagine viewing your bank statement with daily entries on entries because of mutual fund investments through a Daily SIP. If you invest in multiple schemes through Daily SIPs, the number of entries multiply.

   You certainly do not want important bank transactions to get lost in sea of SIP entries. The same goes for your mutual fund transaction statement. Imagine the inconvenience of reading through the statements in order to identify non-SIP transactions.
   

2. Better tracking – With a reduced number of entries under Monthly SIP, you will be able to track your investments better. Imagine comparing your bank statement to your mutual fund statement to check if all transactions were successful. This would be easier to track if you invested through the Monthly SIP route. Also, when it comes to calculating the returns, you would be able to do it faster with investment through a Monthly SIP.
   
3. Ability to plan better – If you are salaried, you get a monthly salary credit. Thus, you can smoothly plan what proportion of your salary can be invested every month. And this can be effortlessly be converted into a mutual fund investment through a monthly SIP. Many opt for a Monthly SIP date that is a few days after their salary credit. Unplanned expenditures towards the end of the month may lead to a lower bank balance, hence, nobody wishes to take the risk of the SIP instalment getting returned. This can get a little tricky with a Daily SIP. Hence, with a Monthly SIP, you should be able to plan your finances better.

In times of volatility, a SIP would undoubtedly be a prudent route as compared to investing your corpus as a lumpsum.As seen in our analysis above, a Monthly SIP will be a prudent choice.

When investing in equity, it is important to keep a long-term investment horizon of five to seven years or more, even if you are investing via a SIP. The returns may be a few percentage points lower as compared to a lumpsum investment, but it will still be sufficient to meet your financial goals.

It is important to note that there are several benefits of investing via a SIP as a regular form of investment.

The top three reasons why you should invest in mutual funds throughSIPs:

1. A hassle-free investment route
2. Deals with market volatility
3. Devoid of behavioural biases

Clearly,SIP-ping into mutual funds, withall these benefits and much more,will help achieve your financial goals.

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Disclosure with regard to ownership and material conflicts of interest

1. Neither QIS, it’s Associates, Research Analyst or his/her relative have any financial interest in the subject Company , except QIS receives fees for providing research to Quantum Equity Fund of Fund (QEFoF) which is Fund of Fund scheme managed by QMF.
2. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report.
3. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront /annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices

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1. Neither QIS nor it's Associates have any compensation from the subject Company in the past twelve months.
2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company in the past twelve months.
3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company in the past twelve months.
4. Neither QIS nor it’s Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months except from Axis Bank Limited under a service agreement.
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General disclosure

1. The Research Analyst has not served as an officer, director or employee of the subject Company.
2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021. Email: info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222

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