Mutual funds: Don’t need lumpsum to become a crorepati via SIPs, even ₹1,000 can help

Becoming a crorepati when you hit retirement would be like a dream come true. There are many ways to become rich but one of the most favourable ones would be investments in regulated instruments. In the current times, there are vast investment options available to browse and park your hard-earned money. That being said, the Systematic Investment Plan (SIPs) a feature offered by mutual funds has emerged as a household name. SIPs are packed with a wholesome of benefits and in long run have the potential to give returns in crores as well. But there often comes a question of how much frequency is needed for a SIP. Money earns money and to achieve your desired target, accordingly investments are required to be made.

Should you invest ₹1,000 on a monthly basis in SIPs? or ₹5000 on a weekly basis? Is ₹10,000 investment per month via SIP enough to achieve your goals? or should you rather invest on a daily basis? Or a weekly investment is better? How much amount is actually the best to earn maximum returns in SIPs? And the list of questions goes on.

In SIPs, there are hardly any differences in returns irrespective of when you decide to invest. You don't even need to burden yourself with a lumpsum investment amount, you can even become a crorepati by investing ₹1,000 on a daily basis.

To provide a holistic picture to investors and help them make better-informed decisions for their investments via SIPs, WhiteOak Capital Mutual Fund in a study said, "a historical data analysis provided below suggests that, in the long term, it hardly matters if the investor invests via Daily, Weekly, or Monthly SIP Frequency. All three frequencies end up generating somewhat similar returns (% XIRR)."

In an analysis, White Oak takes into consideration a small amount regularly invested for the long term.

As per their data, even if an investor makes a SIP installment of ₹1,000 on a daily basis, or over ₹4,700 on a weekly basis, or over ₹20,000 on a monthly basis. The rate of return is somewhat similar for all these three frequencies. Their data shows that the rate of return for S&P BSE Sensex TRI for SIP between September 1996 to September 2022 is similar at 14.3% irrespective of the frequency.

Instead of worrying about the frequency one selects for SIPs, what matters more is beginning SIP early and continuing it in a long run.

WhiteOak's note said, "Starting a SIP early and running it for the long term is more important than what frequency one selects!."

Further, WhiteOak added, "Only in hindsight would we know, what would have been the best day to invest during a month. It is impossible to consistently time the market levels." It believes that waiting for the right time to invest can lead to missed opportunities.

Also, WhiteOak's study added, "Not investing at all is a more significant loss than entering an unfavourable market." It further said, "Even the worst market timing will help grow wealth."

The study showed that even the most unlucky who invested during the worst day of the month managed to earn a return of 14.1%. While the return was 14.6% for the luckiest one who invested during the best day of the month. Whereas the return is around 14.3% for the most disciplined who invested every 15th of the month. The data takes into consideration the % XIRR for S&P BSE Sensex TRI for SIP between Sep 1996 to Sep 2022.

It needs to be noted that past performance may or may not be sustained in the future.

In WhiteOak's view, it's time in the market, not timing the market.

SIPs are one of the most convenient and affordable investment options available in India. Through SIP, a fixed amount is invested in a mutual fund once a month. Here, the investment amount can be as minimum as ₹500. Accordingly, SIP eliminates the need for lump-sum investment and further offers flexibility to investors in their financial planning. They also have tax benefits.

SIPs are a disciplined form of investment where on a scheduled date of a month, your desired amount gets deducted from your bank account without the hassle of having to write out a cheque each time.

As per AMFI, SIP is a simpler approach to long-term investing is disciplining and committing to a fixed sum for a fixed period and sticking to this schedule regardless of the conditions of the market.

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