Daily SIP Mutual Funds: Meaning & Types

Daily SIPs: Small Steps to Big Savings

Aug 02, 2024

5 min

4 Rating

Albert Einstein said compound interest is the eighth wonder and those who understand earn it while those who don’t pay it. Systematic investment plans (SIPs) are an excellent way to benefit from the power of compounding.

What is a SIP?

SIP is an investment mechanism that enables you to build wealth in the long term. You invest a fixed amount at regular intervals to create a large corpus over the years. SIP allows you to ride out through the market volatility without any significant impact on your investments. You may choose different types of SIPs based on the tenure.

Also Read : What is SIP?

Types of SIPs based on Tenure

Daily: As suggested by the name, you invest a certain amount in your chosen fund on a daily basis. These are often suitable for investors who want to take advantage of even minor price movements and are keen on benefiting from the market volatility.

Weekly: Here, you invest a fixed amount at weekly intervals. This option allows you to average the price fluctuations due to market volatility by spreading the investments over several weeks. This option is suitable for investors who seek frequent investment opportunities.

Monthly: This is the most common type of SIP where you invest a predetermined amount at monthly intervals. Monthly SIPs are convenient for investors who want to align their investments with their income cycles. Such type of SIP over the long term offers the benefit of compounding and potentially higher returns.

Daily SIP – Small Steps towards Large Savings

Daily SIP allows you to invest a fixed amount daily rather than the traditional monthly or quarterly SIP. This mechanism allows you to invest every day bringing financial discipline and regular saving habits. It also allows you to leverage market fluctuations while providing convenience and flexibility.

Benefits of Daily SIPs

Compared to traditional monthly SIP, daily SIP benefits investors in multiple ways particularly for individuals with specific financial goals and income patterns. Some of the benefits include:

Discipline and Regular Savings

Investors with an irregular source of income may benefit from a daily investment plan rather than a monthly SIP. It is easier for such investors to follow investment discipline and inculcate a regular savings habit. Small daily amounts are not burdensome ensuring investors stick to their investments.

Convenient and Versatile

You can invest the daily surplus in the SIP providing versatility to your financial management. Some mutual funds also allow you to adjust the daily amount as per your requirements, which makes it a convenient way to invest your surplus income.

Power of Compounding

Daily investments ensure your savings work for you. Even a small daily contribution can help you build a sizeable corpus over the long term through the power of compounding. When you stay invested for a longer period, you allow the returns on your investments to earn additional income thereby accumulating a higher corpus.

Also Read: What is Power of Compounding?

Rupee Cost Averaging

While rupee cost averaging applies to monthly SIPs too, daily plans take it a step further. By investing a small amount every day, you can accumulate more units at a lower NAV and vice versa thereby averaging your purchase cost. This is beneficial especially when the markets are highly volatile.

Factors to Consider Before Investing

Investment Tenure

Knowing your financial goals before starting your investment journey is important. Having a longer investment tenure gives your money more time to grow thereby helping you accumulate a sizeable corpus.

Risk Appetite

Before investing you should determine your risk appetite and comfort with fluctuating market conditions. For risk-averse investors, daily investments may not be advisable as there can be greater volatility and require higher risk tolerance.

Liquidity Requirements

When you invest in open-ended mutual funds, you can withdraw your money at any time offering higher liquidity. Assessing your fund requirements during the investment tenure is an important factor you must consider before starting the SIP.

Building wealth requires a reliable and well-thought-out investment strategy. Daily SIP in mutual funds is a disciplined investment approach enabling you to build wealth over the long term. This option has several advantages like financial discipline, risk mitigation, and convenience. Nonetheless, weighing the possible benefits against the daily market volatility is important before making your investment decision.

Aditya Birla Sun Life AMC Limited /Aditya Birla Sun Life Mutual Fund is not guaranteeing/ offering/ communicating any indicative yield/returns on investments.

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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