Comparing Daily SIP vs Monthly SIP & Which is Better?

Investing in mutual funds via a Systematic Investment Plan (SIP) is a great way to grow wealth over time. However, picking the frequency of this investment, daily or monthly, can make some investors uncomfortable. While both enable invested discipline and rupee cost averaging, there are differences between daily vs monthly SIP.

These differences can affect longer-term return potential and convenience. Let's take a look at how daily and monthly SIPs work, some of the differences, and which one makes the most sense according to your goals.

Daily Systematic Investment Plans (SIPs) are a smarter approach to investing in mutual funds. Unlike traditional monthly SIPs, daily SIPs involve investing an amount on each business day of the month. This offers investors the flexibility to invest based on their financial goals, facilitating a disciplined approach to wealth creation over time.

By investing a fixed amount daily, investors will become habituated to regular saving and investing, which will provide long-term financial success. This systematic approach not only promotes discipline but also harnesses the power of compounding to increase returns over time.

How Does Daily SIP Work?

Daily SIPs will automatically deduct a small amount from your bank account daily. This amount is then invested in a chosen mutual fund or market-linked fund scheme. The advantage of this approach is that it allows you to invest regularly, even when you have limited funds available. Below are the steps on how daily SIP works:

• Step 1: Select a fund scheme that aligns with your investment goals and risk management.
• Step 2: Decide how much you want to invest each day.
• Step 3: Provide your bank details and authorise a recurring mandate for daily deductions.
• Step 4: On each trading day, the specified amount is deducted from your bank account and invested in the chosen market-linked fund.
• Step 5: Over the long term, you accumulate fund units, and your investment grows based on the fund's performance.

A monthly Systematic Investment Plan (SIP) is a strategic investment approach that includes periodic investment of a fixed amount in a mutual fund scheme. By investing at regular intervals, individuals will benefit from rupee cost averaging and compound interest.

It makes it an effective way to grow long-term wealth, specifically for significant financial needs such as retirement or buying property.

How Does Monthly SIP Work?

A monthly SIP allows you to invest a fixed amount in mutual funds every month on a pre-selected date. This approach leads to disciplined investing and the benefits of rupee cost averaging. Below are the steps on how a monthly SIP works:

• Step 1: You decide on a fixed monthly amount to invest. Depending on your financial goals and budget, this amount can be as low as ₹500 or more.
• Step 2: The investment is made at a fixed interval, typically once a month. The chosen amount is automatically deducted from your bank account on the specified date.
• Step 3: The amount invested is allocated to units of the mutual fund based on the fund's Net Asset Value (NAV) on the investment date.

Choosing between daily and monthly SIP depends on your income flow, risk management, and investment goals. Both have advantages, and choosing the best option will vary from person to person.

• Daily SIP: Daily SIPs are best for salaried individuals or those with regular income. They help reduce average market volatility more efficiently and are convenient for those who want to invest in highly volatile markets.
• Monthly SIP: A monthly SIP is for individuals who have a monthly income. It is easy to manage and works well with regular salary cycles or monthly budgeting.
• Combined Strategy: Combining both strategies can diversify the investment timing. You can use a daily SIP for volatile equity funds and a monthly SIP for stable debt, with a balanced portfolio that includes risk across timeframes.

In conclusion, both daily and monthly SIPs have advantages. Daily SIPs offer better rupee cost averaging and volatility management, whereas monthly SIPs provide convenience, discipline, and ease of tracking. Understanding the individual's financial situation and investment goals is the key to selecting the right SIP frequency for optimal returns.

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