How Frequent Should Your SIP Be? Quarterly or Monthly or Weekly?

A Systematic Investment Plan, commonly known as a SIP, is widely considered to be the best way to invest in equity mutual funds. This isn’t debatable, because data has proven that SIPs trump lump sum investments over the long-term. 

What is debatable is the frequency of one’s SIPs. When you think or read or listen about SIP, the frequency that naturally comes to mind is monthly. But is a weekly SIP something worth considering? What about a quarterly SIP?

Before we get into the larger debate about SIP frequencies, let’s try to settle this argument with numbers. Let’s say you plan to invest Rs 1,20,000 in a year in a diversified equity mutual fund. You can do this by investing Rs 2,500 every week for 52 weeks, Rs 10,000 every month for 12 months or Rs 30,000 every quarter for 4 quarters.

Taking a step back, we can consider investments in HDFC Equity fund between 1 August 2017 and 1 July 2018. Here’s how the three different SIPs would have performed.

Source: Value Research

As the table shows, the same amount invested in the same equity fund at different frequencies results in monthly SIPs doing the best. While the difference in returns between weekly SIP and monthly SIP is marginal, the difference in returns of quarterly SIP is quite stark. 

Of course, this data is from one period. If we consider the data of some other period, we might see weekly SIPs doing slightly better than monthly SIPs. But the difference will always be marginal. A weekly SIP is not going to earn you substantially higher returns than a monthly SIP. 

A quarterly SIP means that your money is just lying idly in your bank account when it should be invested and working to earn returns for you. So, that makes the least sense. Hence, between a weekly SIP and monthly SIP, what should you pick?

Why go for a monthly SIP?

From the perspective of the way we live our lives, a monthly SIP can work out the best for us.

1. It fits into our routine: Most of us earn a monthly salary. We also pay our rent, utility bills, EMIs, etc on a monthly basis. Hence, we should be investing monthly as well
2. It is easier to maintain: Investing should be as simple and straightforward as possible. A monthly SIP is easy to remember and fulfill
3. It helps avoid over management: If you invest too frequently, you are likely to review and analyze your investments too frequently, which is unnecessary for most long-term investors

An argument that is often made in favor of weekly SIPs is that they save you from timing the market. But this argument doesn’t stand when you have a fixed monthly SIP date. The idea of setting a date for your SIP is that you don’t time the markets and invest at different levels every month. This helps you benefit from rupee cost averaging, especially when you are investing for the long-term.

On the whole, because SIPs should be a habit that you persist with for long periods of time, a monthly cadence is ideal and adequate for most investors. Remember - when it comes to investing, the simpler, the better.