If you have been investing in an Index Fund or Index ETF through a SIP, then you are already doing good.
But which duration of SIP is better? Daily, Weekly, or Monthly?
Before we get into the analysis, let us understand the 2 SIP approaches.
Fixed Amount ( Regularly investing ₹2000 every month in an Index Fund )
Fixed Quantity ( Regularly buying 20 shares of Nifty Bees share every month )
Although most investors do SIPs based on a Fixed Amount per month, there are some who prefer to do it based on Fixed Quantity. That is because, if you are doing a SIP on a certain stock or on Nifty Bees, the minimum amount is decided by the price of a single share. So, to buy 1 share of Nifty Bees you need a minimum of ₹196.7 today (Jan 13, 2022). On the other hand, if you invest in an index fund, you can do so in multiples of ₹100.
Let us start our analysis with the most popular approach.
1. Fixed Amount Approach
Fund used for Analysis = UTI Nifty Index Fund
Daily SIP = Investing ₹100 every Trading day
Weekly SIP = Investing ₹500 every 5 Trading Days
Monthly SIP = Investing ₹2000 every 20 Trading Days
Here is how your money would have grown.
Not much of a difference right?
However, if you look at the top right of the chart, it indicates that the Daily SIP has performed better (only by a little margin) followed by Weekly and Monthly SIP over the last decade.
Let us also look at the SIP Return at the end of every year.
From the above chart, we can see that the DAILY SIP has performed better at the end of almost every year.
There is another interesting observation…
LUMPSUM vs SIP
Instead of a SIP, had you put a lump sum at the beginning of 2011, your invested amount would have become 3x (3 times) - an absolute growth of ~200% over the last decade.
On the other hand, all the 3 SIPs (Daily, Weekly & Monthly) would have given you an absolute return of around 122% (2.2 times) over your invested amount during the last decade.
With no money in 2011 and by doing a SIP of ₹100 every day you would have had a staggering ₹6,12,000 to date.
From Zero to Hero through SIP, quite literally.
Okay, we are done with the Fixed Amount Approach. Let us move on to the other approach.
2. FIXED QUANTITY APPROACH
Methodology:
Instrument = Nifty Bees
DAILY SIP = Buy 1 share every trading day
WEEKLY SIP = Buy 5 shares of Nifty Bees every 5 trading days
MONTHLY SIP = Buy 20 shares of Nifty Bees every 20 trading days
Here are the results.
Even with respect to FIXED QUANTITY SIPs, the Daily SIP has performed better overall.
In the case of FIXED QUANTITY buying, the overall returns are around 104%. However, if you had followed a FIXED AMOUNT approach you would have gotten an overall return of 122%.
Challenges with DAILY SIP
Now after all the analysis, you might have been convinced that the FIXED AMOUNT DAILY SIP is the best choice. But, certain platforms do not have the provision to do a DAILY SIP. Following is a snapshot from Zerodha’s Coin Platform. There is no option to do a Daily SIP. It might be available on other platforms.
In such scenarios, the FIXED AMOUNT WEEKLY SIP seems to be the next best alternative.
Limitations of this Analysis
Here are some points to note before we jump to a conclusion.
We have considered the data only from Jan 2011.
As always, the future might be different from the past.
The analysis was carried out on instruments where the underlying was Nifty only. Not on other Indices/Stocks.
The SIP amount was considered constant throughout the period. However, in reality, some investors might have increased their SIP amount gradually as they grow.
So, What is the conclusion?
FIXED AMOUNT WEEKLY SIP would be a better choice for most. If your platform has an option to do a FIXED AMOUNT DAILY SIP, that would be even better.
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Disclaimer: All material presented in this newsletter is not to be regarded as investment advice, but for educational & informational purposes only.