Planning to invest daily in SIP Mutual Funds? Here’s what you need to know

Having you been staring at a SIP calculator, wondering whether to trust the numbers shown on the screen? Investing in an SIP mutual fund can come with a lot of queries, especially if it’s a daily SIP plan that you’re looking at.Invest daily in SIP Mutual Funds

What are SIPs?

SIP (Systematic Investment Plan) can assist you in investing money in a disciplined manner. If you’d prefer to invest in mutual funds, you can select either to invest your money in lump sum or via a SIP. Financial consultants suggest SIPs as the preferred mode of investment as they’ll absorb the market fluctuations very efficiently. If you’re new to the equity market, you can explore SIPs as they’re a secure place to begin. In a systematic investment plan, you may buy units of mutual funds at an average price. The SIP investment is done on a monthly or quarterly basis.

Types of SIPs

There are different kinds of SIPs. Monthly or quarterly SIPs are very popular. Now, you may be able to invest in daily SIPs as well. However, you must understand the profitability and tax implications before selecting such financial options.

Monthly SIP – monthly SIPs are pretty popular. Numerous fund houses offer them.

Weekly SIP – a fixed amount of money will be invested on a weekly basis.

Daily SIP – you will invest a fixed sum of money on an everyday basis. Some individuals would love to invest a little amount of money on a daily basis. It is done as per their convenience.

Daily investment option

Daily option in SIP can appeal to those investors who earn daily cash flows and currently invest some of this with unorganised personal financiers, including chit funds that are extremely risky or let the wealth remain idle in bank accounts.

The daily investment option in an SIP mutual fund is appropriate for those belonging to lower strata of income who earn daily wages. It is vital for them to take out some of the daily earnings and invest, without which, they would end up spending the whole sum and would end up with no savings when the month ends.

Daily SIPs and market volatility

When it comes to daily vs monthly SIP, the average entry cost is a function of intra-month volatility. It will depend upon how sharp the deviations were for a month. If volatility is not very high in a month, it’ll result in minimal cost averaging, which can defeat the purpose of SIPs. Over a more extended period, there is a possibility daily SIP would result in higher cost averaging and better returns (by 20-40 bps per annum) than monthly SIP.

Monthly or perhaps weekly SIP options are sufficient to provide better risk-adjusted returns than markets. “By investing daily, you may be minimising volatility. Also, the daily option can unnecessarily increase the number of transactions in your portfolio, which could become tough to manage.

Now that you have a decent idea about a daily SIP plan, you can make your peace with the SIP calculator and start a SIP plan today.