Understanding SIP strategies: Daily, weekly and monthly investment plans

Posted On: 10 July 2023

In the vast universe of investment opportunities, navigating the difficulties of wealth creation can often feel like exploring endless galaxies. But the hallmark of wise investors is that they chart their financial journey well in advance. Systematic Investment Plans (SIPs) offer the investors a disciplined and structured approach to investing, enabling individuals to build wealth gradually but steadily.
Here, we aim to decode the process of setting up daily, monthly, or weekly SIP investments and help investors make informed decisions to reach their financial objectives.

Table of contents

Understanding the meaning of SIP
Types of SIPs based on tenure
Which type of SIP would be beneficial for you?
Points to be considered before choosing SIP type

Understanding the meaning of SIP

A Systematic Investment Plan (SIP) is an investment strategy that allows individuals to invest a fixed amount regularly in mutual funds over a predefined period. You can invest in SIP online, and this provides the convenience of investing small amounts at regular intervals, making SIPs suitable for individuals with varying financial capabilities.
By pooling money with other investors, SIPs offer the advantage of accessing professional fund management, diversification, and better return potential compared to traditional savings avenues.

Types of SIPs based on tenure

Daily SIP
As the name suggests, a daily SIP investment involves investing a fixed amount daily. This approach is relatively less common due to the higher frequency of transactions and potential liquidity challenges associated with daily investments. Daily SIPs are typically chosen by investors with a keen eye on market volatility, seeking to take advantage of small price fluctuations. However, tracking investments and returns daily can be a challenging task.

Monthly SIP
The monthly SIP is a popular and widely adopted approach. It involves investing a fixed sum on a specific date each month. Monthly SIPs offer convenience, as individuals can align their investments with their monthly income cycles. This option is hugely popular with investors who draw a monthly salary. Furthermore, in case of non-volatile funds, monthly SIPs over a longer period allows investors to reap the benefit of compounding and potentially better returns.

Weekly SIP
A weekly SIP in mutual funds entails investing a fixed amount every week. This approach strikes a balance between daily and monthly SIPs. It offers investors the opportunity to average out market volatility by spreading their investments across multiple weeks. Weekly SIPs are often favoured by individuals who seek frequent investment opportunities.

Which type of SIP would be beneficial for you?

Choosing a suitable type of SIP depends on various factors, including personal financial goals, risk appetite, investment horizon, and the availability of surplus funds.

Daily - While daily SIPs demand a greater commitment of time and effort, they may appeal to experienced investors or those closely monitoring market movements on daily basis.
Monthly - On the other hand, monthly SIPs are suitable for most individuals, providing the benefits of compounding and ease of investment. As stated earlier, most salaried individuals opt for the monthly option.
Weekly - Weekly SIPs offer a middle ground, striking a balance between daily and monthly investments.

Points to be considered before choosing SIP type

Investment horizon: Evaluate and align your investment horizon with the chosen SIP type. Whether you dream of a big house, a comfortable retirement, or a luxurious car, setting a goal will help you choose the type of SIP. Also, identify if you need the fund in 5 years, 10 years, or 20 years. Longer investment horizons may benefit from monthly SIPs, allowing for compounding and potentially better returns. Additionally, one can even expect less volatile returns when investing in large-cap funds through daily SIPs.
Risk tolerance: Consider your risk appetite and comfort level with market fluctuations. If you are a risk-averse investor, then opting for daily SIPs could prove to be bad decision. Daily SIPs require a higher tolerance for volatility, while monthly/weekly SIPs offer a more balanced approach.
Liquidity needs: Investing via SIPs in an open-ended mutual fund can provide investors an opportunity to redeem their investments partially or fully at any time, making them highly liquid. Unlike traditional investments like fixed deposits, most SIPs for open ended schemes (except ELSS) do not have a lock-in period. Hence, assess your liquidity requirements before opting for a particular SIP. Daily SIPs may pose challenges in terms of immediate access to funds, while monthly SIPs provide greater flexibility.
Financial discipline: Gauge your ability to adhere to a regular investment schedule and choose an SIP type that aligns with your habits and facilitates consistent investments.

Conclusion:

To conclude, successful wealth creation relies on a well-thought-out investment strategy. SIP in mutual fund provides a disciplined approach to investing, allowing individuals to build wealth gradually over time. The choice between daily, monthly, or weekly SIPs depends on individual preferences, financial goals, risk tolerance, and liquidity needs. While each SIP type has its advantages, monthly SIPs strike a balance between convenience and potential returns, making them a preferred choice for most investors. Remember, regardless of the chosen SIP type, the key lies in creating a diversified portfolio and chosing a suitable investment amount with the help of a mutual fund SIP calculator. Thus, always seek the help of a financial advisor to make informed decisions regarding the portfolio.

FAQs:

Which SIP investment strategy is more suitable for long-term investors?

Monthly SIP in mutual fund is considered to be more suitable for long-term investors. It provides regularity, consistency and helps investors develop disciplined financial habits.

Can SIP amount be changed under different SIP types?

Yes, most mutual fund houses provide the flexibility for investors to modify the SIP amount. Investors can increase or decrease the amount based on their investment objective and financial planning.

How does the choice of SIP affect the investment return?

Depending on the market conditions and SIP investment strategy used, investment returns can be impacted. It is important to remember that SIP is a long-term investment strategy and hence an investor should stay invested for a longer duration to benefit from the power of compounding.

Is it better to invest weekly or monthly in SIP?

Neither option is inherently more suitable, the choice depends upon your investment preferences. Monthly SIPs can be convenient as they can be aligned with income cycles of salaried professionals, while weekly SIPs may suit those who want to make smaller but more frequent investments, or those who want to capitalise on The key is to choose a frequency that suits your financial goals, preferences, and budgeting habits.

How do daily, weekly, and monthly SIPs differ?

Daily, weekly, and monthly SIPs all follow the same principle of consistent investing and rupee cost averaging. However, the SIP frequency differs. In daily SIPs, a set amount is deducted daily from your bank account, weekly SIPs involves a transaction every seven days and in monthly SIPs, the installment is debited from your account once a week on your chosen date.

Which is a better SIP strategy: Daily, weekly, or monthly?

The SIP frequency suitable for you depends on your individual preferences and financial situation. Daily or weekly SIPs may be able to capture shorter-term market movements compared to monthly SIPs. However, monthly SIPs are more convenient to keep track of. Despite minor differences in rupee cost averaging, the key is consistency in investing to meet long-term financial goals.

Can I change my SIP frequency (daily, weekly, monthly) later?

Yes, you can change your SIP frequency (daily, weekly, or monthly). To modify it, use the online platform of the AMC or your investment platform, or contact the AMC or financial advisor. The process to change it may differ from one AMC to another and you may need to submit a fresh application.

How much should I invest in my SIP each month?

The suitable SIP amount for you depends on factors such as income, expenses, financial goals, and risk tolerance. A common guideline is to invest 15%-30% of your monthly income, but it's important to customise the amount based on your current financial situation and objectives. It's crucial to start small, remain consistent, and regularly review your SIP contributions to ensure they align with your changing goals and financial circumstances.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.