SIP (Systematic Investment Plan) is one of the best things that happened for Retail Mutual Fund Investors. We have read multiple times that SIP is the way to build wealth in the long run and so on. And I could not agree more.
But then are Mutual Funds going overboard by offering Daily SIP? Let’s start from the start!
What is SIP?
A Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help you save regularly. It is just like a recurring deposit with the post office or bank where you put in a small amount every month. The difference here is that the amount is invested in a mutual fund.
What are different kinds of SIPs?
Depending on frequency of investment there are presently four kinds of SIPs being offered by Indian Mutual Fund Houses
- Daily SIP
- Weekly SIP
- Monthly SIP
- Quarterly SIP
The names above are self explanatory. For e.g. In case of Daily SIP you invest a fixed sum every business day automatically in your chosen fund.
Do all Mutual Fund Schemes have SIP option?
Monthly SIP is most popular investment plan and offered by all the Mutual Fund Houses is India. It’s more popular and beneficial for Equity Oriented Schemes but some MF Houses also offer them across Debt and Monthly Income Plan funds.
How is Daily SIP different from regular SIP I hear about?
The basic concept is same i.e. of systematic Investment across a fixed period of time. It’s just that the frequency of investment changes. In case of Regular SIP you invest once a month while in Daily SIP you invest on all days when the stock markets are open, which may vary from 19-23 investments per month.
Also the amount invested in every installment is more for normal monthly SIP than daily SIP.
Do all Mutual Funds have Daily SIP option?
Bharti AXA Mutual Fund was the first to offer Daily SIP. From 1st February 2010 IDFC too has started offering Daily SIP across its schemes. Sahara MF too offers Daily SIP for its Debt schemes.
What’s the minimum investment amount allowed for Daily SIP?
Bharati Axa has a daily SIP plan that starts at Rs 300 while Sahara Mutual has a Rs 10-a-day plan. When I last checked IDFC has still not updated its forms & details of Daily SIP on its website.
Is Daily SIP better than regular Monthly SIP?
Theoretically speaking Daily SIP looks a better option. How? Because you can play the market volatility better. In monthly SIP if the market is up on the chosen day you loose out but in daily SIP you are totally independent of Market movement. You avoid the lure and trap of trying to predict the market.
The second advantage is If you’re looking at a lump-sum investment, then going in for a daily SIP would allow you to take advantage of the market volatility, by splitting the lump sum amount in to daily installments over a relatively short time frame.
Any disadvantages of Daily SIP?
Well even thought the concept looks good but it has a lot of operational flaws. The tracking of your investment becomes difficult. When you would see your annual statement for the fund it would run into several pages. Imagine tracking around 250 transactions a year.
The second thing on return basis you don’t gain anything. Yes I have done my analysis for year 1999-2009 on both Daily and Monthly SIP and well on returns basis both are almost equal with Monthly SIP actually outperforming Daily SIP in most cases.
Final Question – Should I go for the Daily SIP option then?
I really don’t support Daily SIP option until you want to take the second advantage stated above i.e. splitting and investing lump sum amount in to daily installments over a relatively short time frame.
To quote MINT: Financial planners don’t seem to be excited about this daily SIP. It is a nuisance, operationally. When you sell your investments and look into your SIP statements to ascertain your capital gains, you will notice daily entries since you had invested every day. Statements run into pages and it complicates for no real reason.