Should we invest in daily systematic investment plan?
The Systematic
Investment Plan is ideal for investors who have a regular flow of money (such
as employees). A simple instruction to the fund house and the bank will help
them invest regularly at a given time and stay away from the volatility of the
stock market. When you invest a fixed amount, such as Rs 5000 a month, you buy
fewer units when the share prices are high and more units when the share prices
are low.
The reinvention of the Systematic
Investment Plan (SIP) has been a boon for investors with a low risk appetite.
Rupee cost averaging and compounding are added advantages. But what exactly is
a Daily SIP? And how does it benefit you, the customer?
Daily SIPs: Advantages
Affordability, volatility and
convenience are the most obvious advantages of investing in a Daily SIP.
- With a Daily SIP, your investment is staggered. Instead
of a lump-sum amount, you invest a pre-specified amount in a scheme at
pre-specified intervals at the then prevailing NAV.
- Consistent monetary contributions average out the
crests and troughs of any market, in the long term.
- It also captures the daily levels of market volatility.
In case of a monthly SIP, you still can lose out if the markets are up on
the chosen day of the month. The daily SIP, however, eliminates this flaw
and lets you benefit out of equity market volatility.
- If you’re looking at a lump-sum investment, then going
in for a daily SIP would allow you to take advantage of the market
volatility, by splitting the lump sum amount in to daily instalments over
a relatively short time frame.
- The Daily SIP is ideal for small time savers, since the
threshold investment level is low.
- Once you start with a Daily SIP, you invest at the
appointed time and that makes you a disciplined investor.
- With Daily SIPs, you capitalise on the periodic dips in
the market and accumulate a greater number of units at lower levels-and
over time, reduce your average unit cost.
- You avoid the lure and trap of trying to predict the
market.
A word of caution
Usually, a fund charges 2.25% of
invested amount as the ‘entry load’. However, in some cases this amount may get
reduced. You should also keep in mind the contribution after taking into
account the cash flows available.
Check if there are any incremental
transaction charges attached to each investment. Especially in the case of
auto-debit, there may be a fee for every transaction. You need to remain
invested in a Daily SIP for at least 3 years to reap the benefits, and
monitoring this on a daily basis can be annoying.
If you should fail to pay the SIP
amount on any particular working day, your investment will not default but your
return will be adjusted against the failure of payment for that day.
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