Which date to select for monthly SIP in equity mutual funds

Systematic Investment Plans (SIPs) are one of the most affordable investment tools offered by mutual funds. Under SIP, one can invest a fixed amount either on a daily, weekly, or monthly basis in mutual fund schemes. They are popular for their periodical investment rather than lump-sum amount. They have somewhat features like recurring deposits where you make a small investment every month and earn returns. But the difference is that SIPs can track much better returns than compared to traditional schemes as they are also linked with the performance of market instruments. However, deciding on the perfect time to invest in equity mutual funds through SIPs can be slightly confusing. Everyone wants to be well-placed to grab the best returns that this market is offering.

Is it better to invest at the start of a month in equity mutual funds via SIPs? or rather the end of a month? Or maybe in the mid-month? Will it be better to invest near the last Thursday of the month owing to higher volatility due to F&O expiry? or rather splitting the SIP amount into multiple dates? These are just some of the challenging questions an investor usually wonders when they ponder upon the dates to begin a SIP.

In a report, WhiteOak Capital Mutual Funds said, “We tried answering these commonly asked questions using long-period data from S&P BSE Sensex TRI (a widely tracked Indian Equity Market Index). The study of the last 26 years’ index data reveals no meaningful difference between the average return of different dates’ 10 Years SIPs.”

As per WhiteOak data of 10 Years Average SIP Return (% XIRR) on a Daily Rolling Basis for a particular date of the month for S&P BSE Sensex TRI between September 1996 to September 2022 — showed that — there is no difference between the average returns for a 10-year SIP plan irrespective of the date an investor chooses to deposit their amount for investing in mutual funds. The data showed that the return is between 15.7-15.8%. Overall, the average return is at least 15.8% irrespective of the dates the deposit is made in a month.

View Full Image

WhiteOak’s analysis attempts to address some of these commonly asked questions around SIP investment backed by long-period market indices data. (WhiteOak Capital Mutual Fund report)

In WhiteOak’s view, the best SIP date is when an investor usually receives money in his/her bank account (For Eg. Salary Credit Day).

WhiteOak’s study attempts to address some of these commonly asked questions around SIP investment backed by long-period market indices data.

Generally, a company pays salaries to employees either on the last day or the first day of the month. Also, the salary credit day can be anywhere in the last week, the first week, or the mid-week of a month. The salary credit day varies from company to company.

“A successful SIP is more about “Starting Early”, maintaining the discipline of “Investing Regularly”, investing for “Long Term” to achieve our “Financial Goals” and less about “Which Date”, “Which Frequency” etc.,” said WhiteOak’s study.

WhiteOak’s note explains that SIPs, a feature offered by Mutual Funds, have become a household name. Its popularity among investors can be seen from the adjacent graph, which depicts growth in monthly SIP contribution by investors over the last six years.

In the first half of FY23, the contributions in SIPs stood at 74,234 crore. In September alone, the contributions came in at 12,976 crore. Since May 2022, contributions to SIPs have stayed above 12,000 crore. In overall FY22, the contributions in SIPs stood at 1,24,566 crore.

Another reason for SIPs gaining popularity among investors as per AMFI is that they help in Rupee Cost Averaging and also in investing in a disciplined manner without worrying about market volatility and timing the market. Overall, SIPs are a convenient method of investing in mutual funds through standing instructions to debit your bank account every month, without the hassle of having to write out a cheque each time. There is also a tax exemption benefit of 1.5 lakh under section 80C of the Income Tax, available under SIP.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

Catch all the Mutual Fund news and updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.

More Less

Leave a Reply

Your email address will not be published. Required fields are marked *