Monthly SIP vs Daily SIP: Choosing the Right Investment Frequency

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. 

Monthly SIP vs Daily SIP: A Comparison

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. 

Monthly SIP vs Daily SIP: Returns Earned

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. 

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 SIP vs Daily SIP: Convenience

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. 

Monthly SIP vs Daily SIP: Taxation

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. 

The Advantages of Monthly SIPs

Monthly SIPs offer the following advantages for investors.

• Disciplined Savings

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.

• Rupee Cost Averaging

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.

• Convenience

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.

• Compounding Benefits

Investing monthly allows your money to start compounding earlier. This could potentially lead to higher returns over the long term.

The Advantages of Daily SIPs

Daily SIPs, though less common than monthly SIPs, offer some unique advantages, too. 

• More Frequent Investing

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.

• Enhanced Compounding

Investing daily means your money starts compounding sooner on each investment. This may lead to greater wealth accumulation over time.

• Reduced Risk of Market Timing

With daily investments, the risk of entering the market at the wrong time is significantly reduced because your investment is spread across many days.

• Flexibility and Control

Daily SIPs provide more control over your investment. This is because you can adjust the investment amount more frequently based on your financial situation.

Monthly SIP vs Daily SIP: The Key Differences

Here is an overview of the key differences between monthly and daily SIPs. 

Monthly SIP vs Daily SIP: Which One Should You Choose? 

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: 

• You prefer a simple set-and-forget investment approach that requires minimal monitoring and management
• You have a regular monthly income that aligns your investment schedule with your income flow 
• You are new to investing and need an easy and less intimidating way to start building your portfolio
• You have long-term financial goals like retirement or saving for a child’s education and prefer a consistent and disciplined savings approach
• You are more risk-averse, prefer to avoid the daily fluctuations of the market and seek a stable and consistent investment method instead

Daily SIPs may be suitable if: 

• You are actively engaged with market movements and are comfortable with frequently interacting with your investments
• You have a deeper understanding of the financial markets and are comfortable making daily investment decisions
• You possess a higher risk tolerance and are comfortable with the inherent volatility of frequent market exposure
• You have a flexible cash flow that can accommodate the daily investment schedule without disrupting your financial stability
• You are aiming for finer rupee cost averaging and believe that daily investments could potentially leverage market volatility to your advantage

Conclusion

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.