Which is the best day of the month to invest in an SIP?

SIP

As systematic investment plans (SIP) emerge as an attractive vehicle to invest in equity for the long term, fund houses are trying to make the proposition more friendly.

JM Financial Mutual Fund recently unveiled an ‘any day’ facility for monthly SIP schemes. It also allowed daily SIP and STP (systematic transfer plan) facilities on any day. Earlier, the fund house used to offer a monthly SIP facility for any day from the 1st to 28th. Some fund houses offer flexibility in choosing SIP dates.

ICICI Prudential Mutual Fund has reduced the daily SIP amount to as low as Rs 20 for select equity funds to make them accessible to more investors on digital platforms. While these moves may take SIPs to more homes, the moot point is that such investments need to be regular and for a longer period.

SIPs attract investors

Many mutual fund investors prefer to stagger their investments. The ‘invest as you earn’ method is convenient for most people. It also reduces the risk of timing the market. Over a long period of time, investors benefit from rupee-cost averaging. No wonder the amount of money deployed through SIPs is rising continuously. Investors put in Rs 14,749 crore through SIPs in mutual funds in May 2023, compared with Rs 12,286 crore in May 2022.

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However, there are many who still procrastinate about starting an SIP, a few who are underinvested, and those who waste time trying to time the market.

Analysing SIPs

The real-world experience of long-term investors can be quite different from what many believe. According to an SIP Analysis Report by Whiteoak Capital Mutual Fund, there is no meaningful difference in SIP returns, regardless of the monthly SIP date chosen. Also, the returns of daily, weekly and monthly SIPs are almost the same.

The fund house analysed the data pertaining to SIPs on the BSE Sensex over the 26 years ended March 31, 2023, to reach these conclusions.

The graphic makes it clear that over a long period, Sensex SIPs have generated 14.1 percent returns (on a compounded annualised growth basis) irrespective of their frequency. In the case of monthly SIPs, the returns stood close to 15.7 percent for dates ranging from the 1st to the 28th of each month.

Just be disciplined

Earning 14 or 15 percent returns makes SIPs an attractive preposition. However, there are lessons that investors should remember.

“Rarely do investors continue an SIP in a scheme for such a long term. Though many talk about investing for the long term, at the first sight of volatility, many new investors opt to redeem their investments. Equities do reward investors, but do not expect linear returns,” said Rajat Dhar, director of the Indian Investors Federation.

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Many times, a rough phase in the equity markets makes returns on SIPs turn negative. In such cases, investors should not abandon their investments. Parul Maheshwari, a Mumbai-based certified financial planner, advises investors against stopping their SIPs due to volatility in the market.

“Investors should make a realistic goal-based plan and start their SIP accordingly,” she said.

If you want to build a corpus of Rs 1 crore for your two-year-old child’s higher education, you could start an equity SIP of Rs 20,000 per month for 15 years, which will help you reach your goal, assuming a 12 percent return, she added.

Some good equity mutual funds for SIPs can be explored here.

Although the analysis showed that the index has generated returns of about 15 percent, investors need to moderate their expectations to about 12 percent, given the lower interest rate compared to a decade ago.

Amol Joshi, founder of Mumbai-based Plan Rupee Investment Managers, advises investors to get started with their SIP as there is no specific advantage of investing on a particular date.

“Invest in line with your investment horizon and risk appetite. Choose equity only for your long-term goals. Continue SIPs and remain invested through the ups and downs of the market,” said Joshi.

What should you do?

Starting an SIP and continuing with it is the first step towards wealth creation. As your income and aspirations go up, you need to increase your investments. Joshi advises topping up your SIPs to reach your goals faster.

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In addition to increasing the SIP in the normal course of your financial plan, Dhar advises doubling them when the markets are down.

SIPs do not assure returns. In the long term, the markets are expected to go up, which, in turn, should reward SIP investors. The only aspect that investors control is the consistency with which they invest in equity mutual funds.