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Anju, a disciplined investor, puts money in an equity mutual fund through a systematic investment plan (SIP). The instalments are debited from her bank account on the 5th of each month.
Recently, the day after her SIP was processed, the market tanked. So did her fund’s net asset value (NAV). Anju wondered whether instead of the monthly SIP, she would have been better off doing her SIP on a daily basis. Say, instead of putting ₹2,000 on the 5{+t}{+h} of each month, what if she invests ₹100 daily through the month? The daily SIP could reduce her risk of being caught on the wrong foot in a volatile market.
But do daily SIPs really improve one’s returns?
Number check
We ran numbers for a few equity funds. Three scenarios were considered — daily SIPs, monthly SIPs early in the month (on the 5th), and monthly SIPs late in the month (on the 27th. NAV data from the lows of November 2008 to the current highs of July 2015 were taken into account.
We found that the annualised returns from the daily SIPs and monthly SIPs are almost the same. In fact, the monthly SIPs often delivered marginally higher returns than daily SIPs (see table).
For instance, the daily SIP in Reliance Equity Opportunities has an annualised return of 25 per cent, slightly lower than the 25.1 per cent in the monthly SIPs. How does this happen?
Not attractive Well, monthly SIPs do sometimes get the short end of the stick due to higher NAVs on the date of investment — this reduces the units an investor gets. But over the long run, this gets made up on occasions when the market is lower on the SIP date.
That’s why monthly SIPs do as well or better than daily SIPs. No surprise then that most mutual fund houses stick with monthly or quarterly SIP options.
From the 12 mutual funds we checked with, just two — Quantum Mutual Fund and BOI AXA Investment Managers — offer the daily SIP option.
In the equity schemes of these funds too, the annualised return on daily SIPs is mostly at par with the return on monthly SIPs.
Even where fund houses do not directly offer daily SIPs, investors do undertake systematic transfer plans (STPs), where funds can be moved everyday from one scheme to another — say from a liquid scheme to an equity one. But the above calculations show that this may not be worth the effort.
Besides no significant difference in returns in the long run, an STP could have tax implications too. Returns on debt funds held for less than three years are taxed at the investor’s slab rates.
The daily SIPs could pose operational hassles too. Most of us earn our income or salary on a monthly basis.
It is easy to keep track of expenses or investments that also happen at monthly intervals. With daily SIPs, there is the risk that your bank account gets swept clean because you haven’t kept track of it. If a SIP debit doesn’t go through, your bank will levy charges.
Also, if you are the kind who frequently checks bank statements, be ready to sift through multiple pages of daily entries.
Monthly SIPs, in contrast, are much simpler. You can fund them with your monthly salary, and they are convenient to operate and keep track of.
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