Kolkata: SIP, or Systematic Investment Plan, has turned into a favourite mode of investment for the investing masses of India. Who doesn’t like the concept of relatively smaller but regular investment amounts generating a significant corpus over a period of several years — returns which can beat inflation by a considerable margin. But any systematic investment calls for investment after regular predetermined intervals. But the moot point is, what should be periodicity of investments — monthly, weekly, or daily?
Purely from the convenience of investment point of view, the monthly SIP has almost assumed a default mode. Whenever SIPs are discussed, an investment adviser assumes that an investor will go for a monthly investment.
Why daily SIP at all?
The concept of monthly SIP is so deep-rooted in the consciousness of an investor that one can easily ask, what will daily SIP achieve? The point to emphasise here is that monthly SIPs are widely followed since these are aligned with our income, which is once a month for most persons. On the other hand, daily SIPs are certainly smaller in amount but can be quite an irritation since it needs the investor to preserve a certain amount of money in the bank account everyday.
However, the cost averaging is dependent on the number of price points one touches, and from that angle, this should be the best mode of SIP. In the case of daily SIPs, investments are made every day and the compounding effect may be magnified over time. This should also lead to higher returns — the more frequent the returns from investment, the higher the power of compounding.
The same argument should imply that daily SIPs can tackle volatility more efficiently. Monthly investments score on three counts — convenience, discipline and ease of tracking. Since salary earners are paid once a month, investments once a month can be easily aligned to the cash flow.
Can tackle volatility better
“The benefits of SIP are based on rupee cost averaging and one can argue that cots averaging is done more intensively in weekly and daily modes. Therefore, there is possibility of a more efficient averaging exercise if the price points that a mutual fund investor wants to register increase. But it is true that the benefits of investing daily as opposed to every month hasn’t been haven’t been studies widely and conclusively enough,” remarked Nilanjan Dey, director, Wishlist Capital and an investment consultant for more than two decades. Investing every day can be especially helpful in volatile times, Dey admitted. If the market is fluctuating, it makes more sense to invest daily.
In the daily mode, since investments take place every day, the risk of investing on an adverse day is almost non-existence and investors don’t need to care for whether the market is high or low. However, investing once a month is easier to manage and track, and therefor, most investors find it suitable.
(Disclaimer: This article is only meant to provide information. News9 does not recommend buying or selling shares or subscriptions of any IPO, Mutual Funds, precious metals, commodity, any form of alternative investment instruments and crypto assets.)
Systematic Investment Plans, or SIP, has turned out to be a much preferred investment instrument for the retail investors in India. While the benefits of SIP are undisputed, many harbor confusion on the frequency of SIPs. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
