Which Is A Good SIP Frequency For You – Daily, Weekly, Or Monthly?

Systematic Investment Plans (SIPs) are a process of investing a fixed sum of money in mutual funds at regular intervals. They allow investors to start with an amount as low as Rs 500 on a weekly, quarterly, or monthly basis.

SIPs have become a preferred investment strategy for many retail investors due to their ability to average out market volatility and inculcate disciplined savings habits. However, a common question arises among investors across various professions and income ranges: what is the optimal frequency for SIPs - daily, weekly, or monthly? 

To answer this, we analyse the compounded annual growth rates (CAGR) across different SIP frequencies, based on a report by Geojit Insights. CAGR shows how much an investment grows on average each year over a certain period. It helps us understand how an investment is likely to grow over time, taking into account any ups and downs along the way. 

CAGR = (Ending Value / Beginning Value)^(1 / Number of Years) – 1

Understanding the Data

The chart presents the % SIP CAGR across various frequencies as of July 2024:

- Daily SIP: 14.26%

- Weekly SIP (Monday-Friday): Ranges from 14.27% to 14.35%

- Monthly SIP (Start and End of the Month): 14.26% to 14.23%

The data shows that the total amount invested over 20 years remains consistent across different frequencies, roughly around Rs 24.8 lakhs, yet the final value varies slightly depending on the frequency.

Here’s the Performance Analysis of Frequencies on Daily, Monthly, and Weekly Basis:

1. Daily SIPs:

According to the chart, the daily SIPs yield a CAGR of 14.26 per cent, resulting in a corpus of Rs 1.25 crores after 20 years.

The data shows that daily SIPs benefit from a higher frequency of investments, which allows for better market timing by capturing more price points. However, this also means that more transactions occur, and you may have to manually invest in the fund of your choice on each trading day. Additionally, you also need to keep ready the required amount of liquid funds on a daily basis. 

2. Weekly SIPs:

The weekly SIPs, depending on the day chosen, yield a CAGR ranging from 14.27 per cent to 14.35 per cent. 

The chart depicts that SIPs done on Wednesday and Thursday have a slight edge, yielding a CAGR of 14.35 per cent, leading to a final corpus of Rs 1.26 crores, slightly higher than daily SIPs. Weekly SIPs seem to strike a balance between the high frequency of daily SIPs and the more spaced-out monthly SIPs (as shown below), offering an advantage in averaging out volatility.

3. Monthly SIPs:

With an investment of Rs 10,340 at the start or end of the month, the investor puts in Rs 24.83

Lakhs in total over the period of 20 years. As of July 2024, the investor would have accumulated 1.24 crore.

Investment in monthly SIPs at the start or end of the month yield a CAGR between 14.26 cent and 14.23 cent, resulting in a corpus slightly lower than weekly or daily SIPs, especially if executed at the month’s end, the data shows.

Despite being less frequent, monthly SIPs are the most common among investors due to their simplicity and alignment with salary cycles. However, if we refer to the chart, they are capturing fewer market entry points, which could be a disadvantage (in terms of returns) in highly volatile markets. But is this factor significant enough to switch to a daily or weekly SIP?

Balancing Convenience with Returns

When it comes to selecting a SIP frequency, the difference in returns across the daily, weekly, and monthly frequencies is relatively marginal, with only a slight edge favoring weekly SIPs, especially mid-week. If investors prioritise convenience and align their investments with their income cycle, monthly SIPs remain a solid choice despite the marginally lower returns.

Says Abhishek Kumar, Sebi RIA (SahajMoney), “Their (investor’s) income is in monthly basis. Daily or weekly SIP could be more apt of for investors who receive their income on daily or weekly basis. The thing with data is that if we torture it enough it will confess to anything so the study although is interesting aspect but the similar study conducted in a different time period might throw different results.” 

For those looking to optimise returns slightly and can manage a more frequent investment schedule, weekly SIPs - especially on Wednesdays or Thursdays - offer a good balance between return optimisation and manageable frequency. Daily SIPs, while slightly lower in return compared to mid-week weekly SIPs, still provide solid returns, and their high frequency makes them a good choice for investors aiming to mitigate market volatility.

Kumar notes, “In our experience long term investors prefer investment frequency which would match frequency of their income. However, there are situations when an investor would like to try out different strategy after daily or weekly SIP but the outcome of such strategy especially in case of equity could not be known in advance.”

“This study itself shows that the difference in SIP frequency doesn’t impact return substantially. So one take this study with a pinch of salt and instead follow an investment frequency which suits their income pattern,” he adds.

Should different kinds of investors (e.g., conservative vs. aggressive) go for different SIP frequencies? “We don’t suggest same,” Kumar says advising that based on one’s income pattern the investment frequency should be decided. “This way surplus cash is invested quickly instead of lying in bank account due to mismatch between receipt of income and investment,” he notes.

In essence, while each frequency has its merits, weekly SIPs appear to strike the optimal balance between convenience and return potential, making them a viable option for maximizing long-term wealth. Should you opt for the same?

“Our advice would be to use monthly SIP as an SIP frequency especially if one’s income pattern is such. However, in cases where one receives income on daily or weekly basis one could explore daily or weekly SIP respectively provided they can manage the operational challenges which comes with it,” Kumar states.

However, investors should know that "in systematic investing discipline is more important than the frequency," the report concludes.