How Investment Frequency Affects SIP Returns: Daily, Weekly, or Monthly
In the dynamic world of investments, the concept of "the more, the merrier" often comes to mind. But does this hold true for mutual fund Systematic Investment Plans ( SIP s) as well? This article delves into the intriguing question of whether investing more frequently in SIPs, such as on a daily or weekly basis, can yield better returns compared to the conventional monthly approach. Through a comprehensive analysis, we explore the potential advantages and complexities of altering SIP frequencies and shed light on a lesser-known strategy that can further enhance investment outcomes.
Comparing SIP Frequencies: Daily, Weekly, Monthly
To ascertain the impact of different SIP investment frequencies on returns, consider the following scenario. Let's assume a monthly investment of Rs 5,000 (equivalent to Rs 1250 per week and Rs 166 per day) in equity mutual funds through SIPs over a 5-year period, assuming a conservative annual rate of return of 12%. The results obtained using a SIP calculator tool are as follows:
# Monthly SIP :
Total Investment : Rs 3 lakh
Corpus Created: Rs 4,12,431
Weekly SIP:
Total Investment: Rs 3 lakh
Corpus Created: Rs 4,45,658
Daily SIP:
Total Investment: Rs 3 lakh
Corpus Created: Rs 4,15,147
This analysis indicates that weekly SIPs potentially offer higher returns. However, it's essential to consider the nuances associated with different frequencies.
# Complexities of Daily and Weekly SIPs
While the allure of increased returns from daily or weekly SIPs is evident, these alternatives present certain challenges. Firstly, most mutual fund platforms and houses predominantly offer monthly SIP options, making it harder to access daily or weekly options. This necessitates extra effort to identify suitable avenues for such investments.
Secondly, adopting higher-frequency SIPs escalates recordkeeping responsibilities. While monthly SIPs generate 12 entries per year per fund, weekly SIPs create 52 entries. This exponential increase in entries can overwhelm investors' recordkeeping systems.
Moreover, tax implications become intricate with daily or weekly SIPs. Each SIP is treated as a distinct investment, requiring separate accounting. The increased frequency amplifies the administrative workload without necessarily compensating for the efforts involved.
Hence, before embracing the allure of superior returns, it's crucial to consider the potential complications these alternative SIP frequencies introduce.
Harnessing the Power of Step-Up SIPs for Greater Corpus
One strategy that often goes unnoticed is the "step-up" SIP. This approach can significantly boost investment outcomes. To illustrate its impact, let's compare regular SIPs with step-up SIPs through various time frames.
Assuming an initial SIP of Rs 5,000 per month and a step-up of Rs 500 annually, along with a conservative 12% annual return, we observe the following:
Regular SIPs:
3 Years: Corpus - Rs 2.15 lakh
5 Years: Corpus - Rs 4.08 lakh
10 Years: Corpus - Rs 11.5 lakh
Step-Up SIPs (Rs 500 top-up annually):
3 Years: Corpus - Rs 2.37 lakh (9% increase)
5 Years: Corpus - Rs 4.85 lakh (17% increase)
10 Years: Corpus - Rs 15.7 lakh (36% increase)
Through step-up SIPs, a mere Rs 500 annual increment results in approximately Rs 22,000, Rs 77,000, and a substantial Rs 4.2 lakh increase in corpus for 3, 5, and 10 years, respectively.
Choosing the Right Path
While higher-frequency SIPs offer enticing returns, the complexities they introduce should not be underestimated. Regular monthly SIPs, coupled with the strategic implementation of step-up SIPs, offer a balanced approach to optimizing returns and corpus growth. To explore how SIPs compare with lump-sum investments and choose the ideal route for substantial corpus creation, further insights are available here.