Mutual Funds

Do daily SIPs deliver more?

Suresh Parthasarathy | Updated on October 15, 2011


The high volatility in the stock market made us wonder whether daily investments would yield better returns than monthly systematic investments that we typically recommend to investors.

Also, are index funds a better option than active diversified funds for daily SIPs, given the higher volatility in index funds than in active funds (as the latter move partly to cash to combat volatility)?

We took a few index funds and diversified funds for this analysis of returns over three years and found that daily SIPs did score over monthly SIPs but only by 1-2 percentage points.

Two, and not surprisingly, active funds score over index funds, whether it is daily or monthly SIPs.

Daily vs monthly

For equity schemes, we preferred Business Line's most recommended ones such as HDFC Equity, IDFC Premier Equity and HDFC Mid Cap Opportunities and assumed Rs 1,000 for 1,095 days.

To our surprise, we found that equity schemes contained the losses better than the major indices.

After a three-year period, the internal rate of return (IRR) of the above-mentioned equity schemes were 16.7 per cent (Rs 13.93 lakh), 24.7 per cent (Rs 15.53 lakh) and 24.8 per cent (Rs 15.55 lakh) respectively, also beating indices such as the BSE Sensex, Nifty and CNX 500 by a good margin (see Table).

To evaluate the performance of the same equity schemes through monthly SIPs, we assumed investments of Rs 30,000 on the first of every month in the above three schemes to match the daily investment of Rs 1,000.

At the end of 36 months, the IRR of monthly investment option was one percentage point lower than the daily SIPs in each of the above schemes. HDFC Equity gave a return of15.9 per cent, IDFC Premier clocked 23.8 per cent and the mid-cap fund HDFC Midcap Opportunities achieved 23.5 per cent returns.

Index Funds

Would index funds fare any better in daily SIPs given the volatility? To analyse how index funds fared against diversified funds, we considered investments of Rs 1,000 a day in some of the better performing index funds such as Franklin India Index Fund-Nifty and HDFC Index-Sensex Plan for 1,095 days (ignoring market holidays and weekends).

Whatever money leftover on holidays was assumed to be invested the next working day.

The total investment would have been Rs 10.9 lakh for 1,095 days.

At the end of the period, the market value of Franklin India Nifty was Rs 12 lakh with an IRR of 6.5 per cent.

Whereas, the HDFC Sensex Plan for the same investment appreciated to Rs 11.8 lakh with IRR of 5.5 per cent.

This clearly is much lower than the daily SIP returns of diversified funds. The monthly SIPs in index too showed only a marginal difference.

Although the daily investment option appears interesting on a theoretical basis, its affordability and convenience for the middle income investor is doubtful.

Unless one goes in for a small amount of SIP, sufficient balance would need to be maintained in the bank account on a daily basis.

If the analysis of the last three years suggests anything, monthly SIPs will do as well.

Also, the comparison between index fund and diversified funds suggests that active funds have paid-off well in a volatile market.

Also, many equity schemes - including the ones we analysed - do not have daily SIP options.

This means that investors have to use other online mutual fund services or take their brokerage's service to implement daily SIP.

Published on October 15, 2011

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