WHAT SHOULD YOUR MUTUAL FUND SIP FREQUENCY BE: DAILY, WEEKLY OR MONTHLY?

Investing in mutual funds through a Systematic Investment Plan (SIP) is preferred by many investors. This is because an SIP investment makes mutual funds accessible and, unlike the lumpsum option, does not require you to have a large amount of money to invest. SIP investments can be as low as Rs. 100 with some mutual funds while most others have Rs. 500 as the minimum SIP amount. You can use an SIP calculator to figure out the ideal SIP amount for meeting your financial goals.

Hence, SIP investments allow investors to go at their own pace and invest a small amount regularly in the funds of their choice. Another benefit of SIPs is their flexibility with regards to the frequency. You can either choose the daily, weekly, or monthly SIP frequency option. To figure out which SIP frequency you should select, it is first important to understand the concept of rupee cost averaging.

What is rupee cost averaging in SIP investments?

When an investor wants to make a lumpsum investment in mutual funds, they have to be particular about timing the market. That is because the age-old investment wisdom urges investors to buy low and sell high to make a profit. Hence, closely tracking the market and using market volatility in your favour is something you need to do when making lumpsum investments.

But when you adopt the strategy of rupee cost averaging, you do not need to time the market. Rupee cost averaging involves investing a fixed amount of money at regular intervals in a pre-determined schedule irrespective of the market price of the investment. This strategy aims at reducing the impact of market volatility on your investments by making spaced-out purchases for long-term investments such as equity mutual funds.

SIP investments follow this same strategy and help average out the cost of your mutual fund units. This option allows you to buy more units when the price is low and fewer units when the price is high. Hence, SIP mutual funds are preferred by many as opposed to lumpsum investments.

SIP frequency options

Most mutual fund investments come with three SIP frequency options:

  • Daily SIP: A fixed amount of money is invested daily in the fund of your choice.
  • Weekly SIP: Here, instead of daily, a fixed amount of money is invested weekly in the fund of your choice.
  • Monthly SIP: This is the most common SIP frequency selected by investors. Here, a fixed amount of money is invested monthly in the fund of your choice.

Daily SIPs carry lower risk and limit losses as the investments are made at a granular level. But this also depends on the efficiency and strategy of the fund manager. However, because the risk is lower, the returns too can be lower as compared to monthly SIPs.

Another thing to consider is that daily SIPs can make the process of tracking and keeping a tab on your investments a little tedious. Monthly SIPs are more convenient for financial and investment planning.

How to select the SIP frequency that is right for you?

The important thing to note is that SIP mutual fund investments are ideally long-term investments and hence, whether you choose the daily, weekly, or monthly option, it is not going to have any material impact on your investment. Research has shown that the difference between the returns of these three SIP frequency options is negligible over the long term. Hence, the deciding factor then should be what is more convenient for you as well as selecting the right mutual fund scheme that aligns with your financial goals and risk appetite.