Does Any Mutual Fund Offer a Daily Systematic Investment Plan (SIP) in India?
Much like the financial sector's ever-evolving landscape, the structured investment habits of Indian investors have been witnessing a shift towards more frequent investment methods. This piece delves into the concept of the daily Systematic Investment Plan (SIP) offered by mutual funds, juxtaposed with traditional monthly SIPs, and elucidates the pros and cons to help you make an informed decision.
Introduction of Daily SIP Options in the Indian Market
In the recent past, significant players in the mutual fund sector such as LIC Mutual Fund and HDFC Securities have introduced daily SIP options. These innovations in SIP frequencies address a recurrent question among investors: Does any mutual fund offer a daily SIP in India?
Why Should You Consider Daily SIP?
Daily SIPs cater to investors who receive daily cash flows. For individuals in the lower strata of society who earn daily wages or have daily cash flows from various sources, daily SIPs can provide a structured approach to investing. Essentially, these individuals can allocate a part of their daily earnings, preventing any potential loss due to the unorganized nature of alternative investment avenues. Unlike chit funds, which are highly risky, a daily SIP ensures that the money is consistently invested in a diversified and regulated mutual fund.
The Advantages of Systematic Investment Plans (SIPs)
Power of Compounding: One of the key benefits of SIP is the power of compounding. The earlier you start, the more time your money has to grow. Let's illustrate this with an example: an investor aged 30 needs to invest Rs 2860 per month to accumulate Rs 1 crore by age 60, assuming a 12% annual rate of return. However, if the investor starts at age 40, the monthly investment required jumps to Rs 10100 to achieve the same goal.
Do You Need Daily SIP to Build Wealth?
For those who earn daily wages or have regular daily cash flows, daily SIPs are appealing as they facilitate disciplined investing. However, it's less relevant for individuals on a monthly salary, as they already have a clear cash flow that can be maintained in a bank account. Daily SIPs, however, would introduce a significant number of transactions—more than 20 a month—whereas a monthly SIP would involve only one transaction per month.
Cost Averages and Performance
The average entry cost in daily vs monthly SIP is influenced by intra-month volatility. When intra-month volatility is not high, the cost averaging process may be less effective, frustrating the purpose of SIPs. Over the long term, daily SIPs could potentially achieve higher returns by 20-40 basis points per annum compared to monthly SIPs. However, monthly and even weekly SIP options can still provide excellent risk-adjusted returns.
Volatility and Returns
By diversifying daily investments, you can minimize the impact of market volatility. Conversely, the increased frequency of transactions might complicate portfolio management. On average, monthly SIPs have generated approximately Rs 2516 more value than daily SIPs, which is a difference of 0.41% in percentage terms. When comparing the portfolio values under daily and monthly SIPs, both generated around Rs 5.86 lakh, with respective XIRR rates of 18.8% and 18.7%.
Conclusion
Daily SIPs may offer strategic advantages, particularly for those with regular daily cash flows. However, for most investors, especially those on a monthly salary or regular income, the benefits of daily SIPs might not justify the increased transaction count and complexity.