What should your mutual fund SIP frequency be: Daily, weekly or monthly?

A Systematic Investment Plan (SIP) is an arrangement under which you invest a pre-agreed amount every month in a mutual fund. This way, you do not have to worry about how much your investments are growing each month. One can invest in mutual funds through (I) Lump-sum investments, and (ii) Systematic investment plan (SIP).

However, what should your mutual fund SIP frequency be: daily, weekly or monthly?

This is a question that gets asked a lot. This depends upon the frequency of the investor. You can make your own decisions based on what works for you. But here are some facts to consider when deciding how often to invest your money.

First of all, investing in mutual funds is a long-term activity. Most people who invest their money assume they’ll hold it for 10 years or more. This means that the return on investment will be much higher if you start early and continue investing regularly throughout your life.

If you wait until age 30 to begin investing, you may have missed out on several decades of compound interest. For example, if you started at age 25 with Rs 5,000 0 invested every month and kept up the same rate of growth for 35 years, you’d end up with over Rs 7.33 crore! But if you start at 30, your returns would drop to Rs 3.46 crore. A five-year delay in investing can cost you dearly.

Second, you need to think about inflation. Since 1971, the Consumer Price Index has risen by 409 per cent. That’s almost double the increase in the Gross Domestic Product. In other words, the average family’s standard of living has increased by about two-thirds since then.

This means that the Rupee today buys less than it did back in 1971. The inflation rate in India between 1971 and today has been 4,094.02%, which translates into a total increase of Rs. 4,094.02. This means that 100 rupees in 1971 are equivalent to 4,194.02 rupees in 2021. In other words, the purchasing power of Rs. 100 in 1971 equals Rs. 4,194.02 today. The average annual inflation rate has been 7.6%. To keep pace with inflation, you need to adjust your investment mix and/or frequency.

Coming back to our question, SIPs can be classified based on their tenure; generally, monthly and weekly SIPs are popular modes of investments.

Daily SIPs: A fixed sum is invested daily in the mutual fund.

Weekly SIP: A fixed sum is deducted every week and put in the mutual fund scheme.

Monthly SIP: A fixed sum is invested monthly in the mutual fund. These are the most commonly used types of SIPs.

SIP frequency — be it daily, weekly or monthly — has a marginal impact on returns. At best there could be a difference of 0.50% in returns. However, you could struggle to monitor your investment if you opt for the daily SIP over the monthly SIP. You would be better off going for weekly SIPs over daily SIPs if you get a fixed salary each month. Ideally, you should try to invest 4 times in a month. This will help you to cost-average your investments.

Instead of worrying about the frequency of SIP, you should focus on selecting the right mutual fund to achieve your investment objective after carefully considering your risk tolerance. Remember, SIP is just a tool for investing in mutual funds.

More importantly, you need to consider your time horizon. How many years do you expect to live? If you plan to retire before age 65, you’ll need to start saving sooner rather than later. And the longer you expect to live, the more aggressive your portfolio needs to be. You need to consider your emotions. Money is a powerful force in our lives. It can make us happy or unhappy. It can give us joy or sadness. It can bring us love or hate. And if you feel you cannot keep a check on your emotions, hire a good financial advisor who will help you to stay on track.

(By Abhinav Angirish, Founder, Investonline.in)