Which SIP is best?

SIP has been a game changer for Indian investors. Retail investors who used to be at the receiving end in the stock markets have benefited the most out of SIP’s in equity funds. Apart from advantages like accessibility to professional fund management and flexibility to invest even small amount of money, the real benefit of SIP has been its risk mitigation capability. Gradually investing through market cycles has helped in rupee cost averaging – without actually knowing about it.

So far... So good.

 

Mutual fund companies are primarily manufacturers of financial products. They keep launching new products to 'entertain' the investors. Many a times – they are least bothered if the products suits you or it makes any sense to investors. Their job is to increase the choice / range of investment options and capture maximum market share / increase their asset under management. It is the job of the investor to see if it makes sense to invest in them.

 

For instance, SIP started off with monthly investment option. Some Investors who have already made these monthly SIPs, may feel bored to start yet another monthly SIP. But they may be excited to try a variant – may be a weekly or daily SIP.

 

But in reality, is it really worth? - is a point to ponder:

 

1. A daily sip will have 200+ bank debit entries in an year - against 12 monthly debits.

2. And if you have 5 daily SIPs, you would have over 1000 bank entries - running to pages.

3. Inspite of that, it is ok if the daily sip adds value. A recent article published @toi clearly showcases the returns generated by various SIPs. The conclusion - no big advantage of daily sip over monthly sip. The difference is a paltry 0.02% to 0.06%.

4. And the fact most Indians don't maintain proper income tax accounts. It is their auditors who maintains these accounts. And they curse you if you bring in truck load of entries.

5. The Climax is when you sell these daily SIP investments. You need to compute the capital gain / loss against each SIP entry. And this can drive your auditors go crazy.

To sum up: Keep Investments simple. Don’t get carried away and fall a prey to the fancies and fantasies of the investment world. Do check for other factors like accounting convenience, effort-reward ratio etc before investing.