Mutual fund companies offer various dates for investing in their Systematic Investment Plan (SIP) schemes. While few investors may choose the date based on their salary credit, others may look for the last Thursday of the month, where the volatility is high due to F&O expiry.
However, the moot question is — is there anything like best date to do your SIP investment?
WhiteOak Capital Mutual Fund (MF) has come up with some data showing 10 years' SIP average return in daily rolling basis for particular dates of the month. For this, the MF house took S&P BSE Sensex TRI into consideration.
The result can be seen here:
These returns, as WhiteOak Capital, said are for SIP between September 1996 to September 2020. The data clearly shows that there are only minor differences in the returns based on the period under observation.
Hence, there is no strong case for a specific SIP date. Any date will work.
Also, WhiteOak revealed which SIP frequency should investors select. Here are the results:
Here, the instalment amounts are selected in such a way that the total investment remains the same in all the three frequencies for better comparison, WhiteOak Capital Mutual Fund said.
This again shows no major difference in the returns.
So, the bottomline here is that the corpus generated is more or less the same irrespective of the SIP dates and frequency chosen.
As experts say, investors should never try to time the market. SIPs are designed exactly to deal with any the kind of volatility in the market. So, one should choose the date as per convenience.
SIP works on a phenomenon called
rupee cost averaging. This allows investors to buy more units of a mutual fund when the market is low and reduce the per-unit cost of investment.
By inculcating discipline (to invest regularly) and by limiting investments to a fixed amount, SIPs ensure investors don’t go overboard during good times and don’t stop investing during bad. By eliminating the need to time of the market, SIPs mitigate the risk of investors entering at the wrong time.
Markets tend to go in cycles, stimulated by emotions of greed and fear. What that means is sometimes stocks are dirt cheap while at others, they are too expensive. But over time, stocks tend to converge with their true earnings potential. So, investing in SIPs for long periods would result in purchase of stocks at various valuations, which would average out to mean.
Thus, SIP is a good way of accumulating mutual fund units on a periodic basis and over market cycles to create wealth in the long term.
(Edited by : Shoma Bhattacharjee)
