Busting 6 Common Myths About Daily SIP

Fact: Your mutual fund investment returns primarily depend on your mutual fund scheme's performance, market conditions, investment amount and how long you invest and not on how frequently you invested in the scheme. So, investing every trading day does not guarantee higher returns than investing weekly or monthly. A Daily SIP spreads your investments across different market levels, which can help average the purchase cost of units over time. However, SIP frequency alone does not determine your mutual fund investment returns.

Daily SIP can help manage the impact of market volatility, but it does not eliminate the market risk. Since you invest regularly, you buy more units when the prices are lower and fewer when the prices are higher. This is known as rupee-cost averaging and can help in spreading your purchase cost across different market levels. However, your mutual fund investments are still subject to market risks and the value of your investments can still rise or fall with the market movements. Thus, daily SIP does not guarantee returns or protect you from losses.

Many people believe that investing an amount as low as Rs 100 every day cannot grow into a meaningful corpus. But the fact is investing a small amount regularly can potentially build a substantial corpus over a long time with the power of compounding. 

Example: Let’s say you invest Rs 100 every trading day. Then, the total amount you invest in a year would be ~Rs 25,200 (assuming there are 252 trading days in a year). If you continue investing for several years, your contributions can accumulate and the returns generated can potentially earn further returns through compounding. The longer you keep your money in the market and the more consistently you invest, the greater will be the potential for your corpus to grow. However, the actual returns are not guaranteed and will depend on the fund’s and market performance.

Daily SIP allows investors to invest in mutual funds without worrying about market timing. You do not need to manually make an investment every day or track the market every day. Once your daily SIP is set up on the investment platform of your choice, the specified amount will automatically be debited from your bank account and invested in the selected mutual fund scheme on every trading day. You can simply review your investments periodically instead of tracking the market movements every day.

Some believe that daily SIP performs well only in a rising market. But the fact is daily SIPs can work across different market cycles, including the periods of falling markets. When the market declines the same investment amount can buy more mutual fund units, while when the market prices rise, it buys fewer units. 

This regular investing approach spreads purchases across different market levels instead of relying on a single entry point. However, investing via daily SIP during a falling market does not guarantee higher profits. The benefit of investing comes from continuing the investment in different market conditions for a long-term. The value of your investment can still fall if market conditions remain unfavourable.

A lot of people think that daily SIP can’t be changed once started. But, it is not necessarily a permanent commitment. Depending on the platform, mutual fund scheme and applicable terms, you may generally be able to modify, pause or stop your daily SIP. 

For instance, if your income changes or your financial priorities shift, you may be able to change your daily SIP amount, pause the investment for a period or stop it altogether, again, depending on the platform and fund’s rules. You can also start a new SIP later whenever your finances allow. Also, the exact options available for altering your daily SIP and the related terms and conditions may vary across platforms and schemes.

Bottom Line

If any of the above myths about daily SIPs have ever made you hesitant from investing, understanding more about it can help you make a more informed decision. Just remember that daily SIPs are not a shortcut to earn higher returns. It helps you invest regularly, spread purchases across different market levels and build investing discipline over time. But, ultimately, it is your investment amount, the performance of the chosen mutual fund, your investment period and market conditions that will influence your investment returns. As with all mutual fund investments, returns are market-linked and not guaranteed.