Which one is better? Daily SIP or Monthly SIP?

SIP is a popular investment option for investors who are investing in mutual funds. They often think about figuring out whether they should invest Monthly or Daily. In this article, let us understand who should invest monthly and who should invest daily, and understand the difference between both modes of investment.

What is SIP?

SIP stands for Systematic Investment Plan. It’s like saving a little money regularly to grow it over time. Imagine you put a small amount in a piggy bank every day or every month, but instead of a piggy bank, it’s a mutual fund, a place where experts use your money to buy things like stocks or bonds to grow it.

For example:

• You decide to save ₹100 every day or ₹3,000 every month.
• This money goes into a mutual fund.
• Over time, it can grow because the fund makes profits.

The cool part? You don’t need to save a big amount all at once. Small, regular savings add up!

Daily SIP vs Monthly SIP: What’s the Difference?

Daily SIP: 

Invest a small amount (e.g., ₹100) daily into a mutual fund.

• How it works: Automated daily deductions from your bank account to buy mutual fund units.

Pros:

• Averaging benefits: Captures daily market fluctuations, potentially buying more units at lower prices (rupee cost averaging).
• Disciplined saving: Encourages a daily saving habit.
• Smaller amounts: Easier for those with daily cash flow to invest small sums.

Cons:

• Transaction costs: Some banks may charge fees for frequent transfers.
• Tracking complexity: More transactions to monitor.
• Limited impact: Minimal advantage over monthly SIPs in stable markets.

Monthly SIP: 

Invest a larger amount (e.g., ₹3,000) once a month into a mutual fund.

• How it works: Automated monthly deductions to buy mutual fund units, typically on a fixed date.

Pros:

• Simpler tracking: Fewer transactions (12 per year vs. ~365 daily).
• Lower costs: Fewer bank fees compared to daily transfers.
• Convenient: Aligns with monthly salary cycles for most investors.

Cons:

• Less frequent averaging: Misses daily market dips, potentially buying fewer units during volatility.
• Larger commitment: Requires a bigger lump sum, which may strain budgets.
• Habit formation: Less frequent, so less ingrained as a daily discipline.

Which is better?

• Daily SIP: This option suits those with consistent daily cash flow who seek to maximise rupee cost averaging in volatile markets. It is best for disciplined savers unbothered by tracking many transactions.
• Monthly SIP: This is ideal for most investors, especially salaried individuals, due to its simplicity, lower costs, and alignment with monthly budgets.
• Returns: Historically, the difference in returns between daily and monthly SIPs is minimal (0.1–0.5% annually), as both benefit from rupee cost averaging over time.
• Recommendation: Choose based on convenience and cash flow. Monthly SIPs are generally preferred for their ease and lower costs unless you strongly prefer daily discipline or expect high market volatility.

How it works: 

Lets compare Daily SIP vs Monthly Sip

Systematic Investment Plans (SIPs) are a disciplined approach to investing, allowing individuals to invest fixed amounts regularly in mutual funds. Both daily and monthly SIPs offer unique advantages, catering to different investor preferences and financial goals. Below is a professional and balanced overview of the benefits of each.

Benefits of Daily SIP

• Enhanced Rupee Cost Averaging: Daily SIPs involve investing a fixed amount each day, which allows investors to spread their investments across more market cycles. This frequent investment approach can smooth out the impact of market volatility, as it captures a broader range of price points, potentially reducing the average cost per unit over time.
• Disciplined Micro-Investing: Daily SIPs encourage a highly disciplined saving habit by allocating smaller amounts daily. This can be particularly appealing for investors with irregular cash flows or those who prefer breaking their investments into smaller, more manageable portions.
• Compounding Benefits: Even small amounts invested daily can benefit from compounding over time, as returns are reinvested more frequently. This can lead to gradual wealth accumulation, especially in long-term investment horizons.
• Flexibility for Smaller Budgets: Daily SIPs allow investors with limited disposable income to participate in mutual funds with minimal daily contributions, making investing accessible to a broader audience.
• Mitigation of Timing Risk: Investing daily minimises the risk of investing a lump sum at a market peak, as the investment is spread across multiple days, reducing the impact of short-term market fluctuations.

Benefits of Monthly SIP

• Convenience and Simplicity: Monthly SIPs align with most individuals’ income cycles, such as monthly salaries, making it easier to plan and allocate funds. This simplicity reduces the cognitive load of managing frequent transactions.
• Lower Transaction Costs: Since monthly SIPs involve fewer transactions compared to daily SIPs, they may incur lower administrative or transaction fees, depending on the fund house or platform used.
• Effective Rupee Cost Averaging: While not as granular as daily SIPs, monthly SIPs still benefit from rupee cost averaging by spreading investments over time, helping investors buy more units when prices are low and fewer when prices are high.
• Suitability for Long-Term Goals: Monthly SIPs are ideal for investors with long-term financial objectives, such as retirement or education funding, as they allow for consistent investments without requiring daily attention.
• Ease of Budgeting: For many, committing to a fixed monthly amount is more practical and aligns with monthly budgeting practices, ensuring investments are planned alongside other financial obligations.

Key Considerations

• Investment Discipline: Both daily and monthly SIPs foster disciplined investing, but the choice depends on an investor’s cash flow, convenience, and preference for frequency.
• Market Volatility: Due to more frequent averaging, daily SIPs may offer a slight edge in highly volatile markets, while monthly SIPs are sufficient for moderately volatile markets.
• Administrative Feasibility: Investors should check with their fund house or platform, as some may not offer daily SIPs, or there may be differences in minimum investment amounts or processing fees.

Both daily and monthly SIPs are effective tools for wealth creation, each with distinct advantages. Daily SIPs suit those seeking more frequent investments and greater exposure to market fluctuations, while monthly SIPs offer convenience and alignment with typical income cycles. 

Investors should assess their financial situation, goals, and preferences to choose the approach that best aligns with their needs, ideally in consultation with a financial advisor.

Does Saving Daily or Monthly Make a Big Difference?

Both daily and monthly SIPs use something called rupee cost averaging. It’s a fancy term, but it just means you buy more when prices are low and less when prices are high. Over time, this evens out the cost.

Let’s say you want to buy mangoes:

• If you buy a little every day, some days mangoes are cheap (₹50/kg), some days expensive (₹100/kg). Your average cost might be ₹75/kg.
• If you buy once a month, you might get them at ₹80/kg or ₹70/kg, depending on the day.

Daily SIP buys more often, so it might save you a tiny bit more if the market jumps up and down a lot. But in real life, the difference is very small like a few rupees after years.

For example:

• You invest ₹3,000/month (or ₹100/day) for 3 years in a mutual fund.
• If the fund grows the same way, your money might become ₹1,20,000 with a monthly SIP or ₹1,21,000 with a daily SIP. See? Not a huge gap!

Who Should Pick What?

Daily SIP is good for:

• People with lots of money who want to spread it out.
• Someone who gets paid daily or has extra cash every.
• People who love being super disciplined and want to invest in small bits.

Monthly SIP is good for:

• People with a job who get a salary every month.
• Beginners who don’t want to think too much about investing.
• Anyone who likes keeping things simple and easy.

Taxation on Daily & Monthly SIPs

Whether you choose daily or monthly, the tax rules are the same. If your mutual fund makes money, you might pay tax when you sell, but it doesn’t matter how often you invest.

Also, daily and monthly SIPs work the same in the mutual fund they buy units at the day’s price (called NAV). There is no big difference there.

What Do Experts Say?

Most financial advisors say that monthly SIP is best for most people. It’s easy, matches your salary, and you don’t need to check your bank every day. Daily SIP can be slightly better if you’re investing a lot of money or if the market is very up-and-down, but it’s not worth the extra effort for most of us.

How Should I Invest Daily or Monthly SIP?

• Monthly SIP is like a simple, reliable bike. It gets you to your goal without much fuss. Best for most people.
• Daily SIP is like a fancy scooter. It might feel cooler and could save a tiny bit, but you need to be okay with a little extra work.

Things to consider

1. Think about your money: Do you get paid monthly or have cash daily?
2. Decide easier, one big saving a month or a small saving every day?
3. Start small you can always change later.
4. Try Cleartax SIP calculator online to see how your money can grow.

Conclusion

Both options are good to prefer, but compared to investing in between both, it is better to go with a monthly SIP so there will be no tensions about checking the bank account to see if the funds are available. If your bank account doesn’t have any funds, charges will be deducted in some cases due to the failure of the SIP.