Friday, June 16, 2017

Is Daily SIP Superior to Monthly SIP?

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Actual Question

Is a daily SIP of Rs. 2,000 in a mutual fund a better idea than a monthly SIP of Rs. 60,000?

Dear Friend!

You have asked a very interesting question.

The key concept behind a systematic investment plan (SIP) is to even out the price fluctuations. Since timing the market is extremely difficult, wise people had devised to achieve the next best thing, the ‘Dollar Cost Averaging (DCA)’ through SIP.

Now the focus shifts to your question regarding whether it is ideal to achieve DCA by investing daily or monthly.

Of course, it goes without saying that as the frequency of investing increases better averaging is achieved.

If this is so, why once a day?

Why not every hour?

So it is all about the question of reasonableness.

One has to strike a balance between the improvement in results and the time and effort involved in making investments. Obviously there is an opportunity cost involved for the time and efforts expended!

And finally in real investing, where we are talking about long times of two to three decades, it really is not going to make much difference whether you are investing through SIP on a daily basis or monthly basis.

To conclude in the real world of true value investing monthly SIP is adequate and one need not take the trouble of investing daily to achieve better dollar cost averaging.

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Thank you,

With Best Regards,