A lot of question that is asked when I meet mutual fund investors is which frequency of SIP is best for investment? There are many frequencies of SIP investments carried out by investors such as Daily SIP, Weekly SIP and Monthly SIP. But out of these, which is actually best? I carried out a data analysis to find it out. Let's see this in this blog post.
The main feature of SIP is that it helps to average out the cost of investment while consistently investing over a period of time in various fluctuating market environments.
In that way, if consistent investing is followed frequently and the chance of taking advantage of the majority of the market's ups and downs is greater than investing once a month, would a weekly SIP or a daily SIP be better than a monthly SIP? If the SIP investment amount is high, it is natural that we want to maximize the return on averaging.
Let us analyze the returns given by some of the mutual funds in SIP investments over various periods.
How To Compare SIP Returns?
We have taken various market cycles and different SIP tenures over the last 15 years to compare monthly SIP, weekly SIP or daily SIP.- 3 Five-year period: January 2005 to December 2009, January 2010 to December 2014, January 2015 to December 2019.
- 10-year period: January 2005 to December 2014, January 2010 to December 2019
- 15-year period: January 2005 to December 2019
Nifty 100 Daily, Weekly, Monthly SIP Returns
Nifty 500 Daily, Weekly, Monthly SIP Returns
After this study, what we can conclude is that there is no way to say that investing at a certain frequency will result in higher returns. Although the stock market is full of fluctuations, they do not undergo large fluctuations in daily trading. It also gives more possibilities to average the investment cost.
On the one hand, the benefit of a drop in day trading can be offset by an investor making a market peak. For example, suppose you invest Rs 10,000 in monthly SIP from January 2011 to December 2020 in Nifty 100 index. Your total investment is Rs.12,00,000. As of December 2020, its value is Rs.22,06,095.
If we change the monthly SIP of Rs 10,000 to weekly SIP of Rs 2,298, our total investment remains unchanged at Rs 12,00,000. But, the value of the investment in December 2020 is Rs.22,06,413. Weekly SIP has yielded Rs 318 more than monthly SIP.
If we change the monthly SIP of Rs 10,000 to weekly SIP of Rs 2,298, our total investment remains unchanged at Rs 12,00,000. But, the value of the investment in December 2020 is Rs.22,06,413. Weekly SIP has yielded Rs 318 more than monthly SIP.
Similarly, if we convert monthly SIP to daily SIP, we will invest Rs.484.26 per day. Total investment from January 2011 to December 2020 is Rs.12,00,000. The value of the investment in December 2020 is Rs.22,07,230. Daily SIP has yielded Rs 1,135 more than monthly SIP.
If we compare the returns of SIP investment, daily, weekly and monthly, it is clear that there is not much difference. This comparison tells us:
Take the time limit based on the start date and end date. For example, from 01.01.2005 to 31.12.2019. Calculate and compare SIP investment amount, total investment, value on investment at the end and rate of return. We have given the income comparison table in this example. Similarly, you can compare and contrast.
If you are attracted by the fact that weekly SIPs and daily SIPs offer slightly higher returns than monthly SIPs, you can freely opt for weekly SIPs and daily SIPs. Or for those who are still confused, here are some clear explanations on why monthly SIP is best.
If we compare the returns of SIP investment, daily, weekly and monthly, it is clear that there is not much difference. This comparison tells us:
- Weekly SIP returns are not much higher than monthly SIP returns to argue that there is a greater return on account of shortening the period of SIP investment and investing more frequently.
- When the market is in decline i.e. when the investment cost is expected to decrease, monthly SIP method is sufficient for that. If the market downturn is short-lived, no SIP scheme has the potential to reduce investment costs. So, if you want to take full advantage of market decline to reduce your investment cost, the best way to do that is to invest a substantial lump sum of your surplus and carry out averaging in SIP investments.
Take the time limit based on the start date and end date. For example, from 01.01.2005 to 31.12.2019. Calculate and compare SIP investment amount, total investment, value on investment at the end and rate of return. We have given the income comparison table in this example. Similarly, you can compare and contrast.
If you are attracted by the fact that weekly SIPs and daily SIPs offer slightly higher returns than monthly SIPs, you can freely opt for weekly SIPs and daily SIPs. Or for those who are still confused, here are some clear explanations on why monthly SIP is best.
- Monthly SIP is easy to manage: Salaries get paid only once a month. Hence, monthly SIP method is suitable. It's easy to keep track of your bank account balances and make sure you have enough money to invest when it comes to monthly investments. In case of weekly SIP, 4 installments in a month, in case of daily SIP, the number of trading days in a month. So, there is always work to be done to see if there is money in the bank account and for how many more installments the money is required. In case of monthly SIP, this does not work.
- Tax return filing, portfolio management made easy: When we sell the mutual fund investment and take the proceeds we have to record the capital gain in the tax return. This capital gain has to be calculated separately for each investment transaction. When the number of investment transactions is large, it is very difficult to calculate the cost and profit of each transaction. Similarly, exit load is difficult to calculate. Hence, calculating the capital gain on monthly SIP and managing the portfolio will be easy.
- Benefit on Equity Funds only: In SIP investments only equity funds can see significant gains by taking advantage of fluctuations. Averaging opportunities are not available through SIP investments in other types of funds. Similarly, timing in other funds carries significant risk. Therefore, frequent investments in other types of funds will bring more difficulty.
