Daily SIP - Much Ado About Nothing

Financial tsunami hit the Indian stock market sometime in month of January 2008. Even as share prices started their dive towards the ocean floor, optimism persisted for some time in Indian mutual fund industry. Investment gurus and fund managers predicted a quick recovery and pointed to the southward trip of prices as a buying opportunity. The markets behaved like a monkey on a slippery rope, going up then slipping down. Unlike the monkey in Shakuntala Devi’s puzzles this monkey slipped more than it climbed, until it touched the Mariana Trench sometime near Diwali last year.

By October 2008 investors had become as cold as dark side of moon. Revenue of mutual funds was drying up faster than water table of Delhi. A solution was needed to set cash registers ringing again. And a solution was found. Make that two solutions.

The first route to salvation was an early gift by Mr. Santa Clause. As the risk appetite of investors fell like rock money started moving towards safer government bonds. The central banker worried about the impending death of our glorious economy (which any fund manager worth his salt never stops praising) had started cutting interest rate in the economy. This created an opportunity to make money in bond market. All mutual funds started selling debt and gilt schemes like never before. At the peak of this hysteria every mutual fund was trying to outdo the other by claiming to be the fastest bus (or should I say donkey) to El Dorado. That the investors lost money like they never had it is a subject of another post. I must add that few fund managers like Mr. Shah of ICICI Prudential AMC were able to identify the opportunity to make money by taking interest rate calls well ahead of others. However at the end of the day most investors lost money because they did not get out of the schemes in time (time in the market is more important than timing in the market? Does not look like the case here now does it? Investors please remember that when investing in debt/ bond schemes timing is most important. Time is very important when investing in equity mutual funds)

The second way of getting investors to put their hard earned money into mutual funds at time of such distress was invented by the fledgling Bharti AXA Investment Managers. This company was trying to sell its first equity NFO (New Fund Offer) in the market in the month of September. This was one of the worst times for a new fund house to sell equity NFO. But Bharti AXA had something which the competition did not have, Daily SIP. Daily SIP is just like a monthly or a weekly SIP, but the investment is made daily in the selected scheme. If the reader remembers around same time last year equity market was very volatile, which means it was going up and down very fast and very unpredictably. Daily SIP was touted as volatility killer, and was supposed to give better return than a lowly monthly or weekly SIP. So what has been the result one year down the line? I have summarized the result of investing in Bharti AXA Equity Fund – Monthly SIP and Bharti AXA Equity Fund – Daily SIP in the table given below. Daily SIP has given lower return than monthly SIP.





It is evident that a daily SIP is in no way superior to monthly SIP. Daily SIP is just a sales stunt. The same exercise can be done for other mutual fund schemes for different time horizons. The results will be similar. There is not much difference between a monthly SIP and a daily SIP. The trouble to monitoring a daily SIP is not worth the reward.


Investors should stay clear of shenanigans and tomfoolery of mutual fund companies.


Excel sheet for the above table is stored at google docs and can be accessed here