I recently
hired a certified financial planner from a financial planning company because I wanted an expert guidance
for my SIP investment. This is when
my financial planner told me that newly launched yearly SIPs might not make too
much of sense for me. This is because like every new scheme, even this scheme
had its pros and cons. For example, in
monthly SIP, the person is aware that a certain sum is going to be deducted
from his bank account on a particular day and so he ensures that there is money
in the account. In yearly SIP, there is a high chance of missing the payment
date. However, he also said that the mutual funds take a cue from the insurance
industry where yearly premium payments are the most popular, besides having the lowest lapse rate.Some finance wizards are of the opinion that monthly SIPs do not continue for long periods. Even when
people enrol for a long tenure of, say, five years, they generally stop after
two to three years. The same lesson has been learnt by the insurance industry,
which also provides monthly, quarterly and yearly payment options. Here too
most policies that lapse are monthly payment ones. The number of policies that
lapse is the minimum in case of the yearly option. The fund house wants to see
if it works in mutual funds too, but what is beneficial for investors is the
monthly SIP.If an investor has a lump sum, he can take the weekly or daily SIP
route to systematically invest in equity funds. After all this, I got a little confused with the performance of daily,
weekly, monthly or quarterly SIPs.
If we go by
books, then the more staggered the SIP is, the more
returns you earn. The is so because the more regular investing helps you catch
market volatility better as you invest during highs as well as lows. This
results in better averaging. In case of SIPs with a big gap between
investments, if the market is up on investment date, you will lose out. In
contrast, in daily SIP, there is no need to time the market as you invest on
all days the market is open.As far as returns are concerned, if you are
investing for a longer period of, say 10-15 years, the frequency will not
result in any substantial difference in returns, whether you choose daily,
weekly, monthly or quarterly SIP.
