Stick to monthly SIPs

If you have additional cash, try daily or weekly plans.

Shalini Gandhi has seen her investment of Rs 49,000 in the past year go down by Rs 7,000 due to poor market conditions. Given the volatility in the markets, the Mumbaikar fears more loss, if she continues with her systematic investment plans (SIPs).

However, financial advisors feel it is a wrong way of looking at things. Gandhi stands to gain significantly when the markets turn around, because she is getting more units of the scheme for the same amount. But can she manage her existing SIPs or put more money to take advantage of the volatility?

Gandhi feels it should. “Then, a daily SIP should work wonders as the market changes its course every day. Hence, cost averaging will be more helpful on a daily basis," she argues.

A former head of a fund house agrees. He says daily SIP works if the market volatility is high and likely to continue. But the catch: this may not be the case consistently and hence, he advises to stick to monthly investment option.

Financial advisors feel even this strategy may not guarantee higher returns. "The markets are volatile with a downward bias and so there is some merit in thinking of spreading out through weekly or daily SIPs," explains Rajan Krishnan, chief executive officer of Baroda Pioneer AMC. "However, if the quantum of investment is not going up, the instalments get smaller. Which means the benefit of spreading out may not be as material."

It does not really matter in the long run, feels certified financial planner Suresh Sadagopan. “The advantage of cost averaging you get with a monthly SIP is good enough. The only thing that you need to keep in mind is to not stop it,” he says.

Instead, if Gandhi has a lumpsum, she may divert it to a good equity diversified fund via fortnightly SIP. Or, put the lumpsum into a fixed income fund and then transfer it to equity via systematic transfer plan (STP). Say she has a surplus of Rs 1 lakh that she puts in a liquid fund. She can transfer the money over ten weeks in to two large cap schemes (Rs 5, 000 each) via STP. This way she will be able to capture different market levels and average out. This, without, disturbing her ongoing monthly SIP.

However, there could be two costs involved. There will be an exit load when Gandhi moves money from liquid to an equity scheme. Here, one has to select and time the exit. Some liquid funds charge a small exit load (one time) during the first seven days. In that circumstances, one needs to time the exit so that the load is not charged. Second, in case you are using a broker or bank to move money through STP, once you cross the Rs 10,000 limit, there will be a charge of Rs 100 which will be deducted in two-three instalments. However, many distributors don't charge this fee. One could make the entire transaction cost-free by selecting the right advisor (who charges nothing) and selecting a scheme in which there is no exit load or time it properly.

"The advantage with this arrangement," explains Sadagopan, "is that the amount in a liquid fund will not be subject to equity market volatility till the transfer is complete, enjoying decent returns and capital safety on the debt fund side."

Besides, there are certain administrative issues of managing so many transactions. Where you have already registered an ECS mandate to your bank for debiting a fixed sum every month on a particular date towards the scheme, you would have to stop the ongoing SIP and revise the mandate to tweak the investment amount.

Another issue would be that there will be many debit transactions in a month, instead of just once a month. So you will have to make sure you keep adequate balance in your bank account for these transactions. Weekly and daily SIPs are not that commonly offered by the industry. It is better to stick to the monthly SIP route. It makes it easier to understand, implement and track.