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A successful SIP investment is most likely not related to the date, the amount, and frequency among others. To achieve the best returns in equity mutual funds, the success of SIP investment lies in simpler factors like being an early bloomer, disciplined investing, and parking your money on a long-term basis. In the past few years, SIPs have been gaining traction among mutual fund investors in India so much that the mechanism has even become a household name. In the current year, when markets are witnessing extreme volatility due to macroeconomic conditions, the contributions in SIPs have recorded a significant rise.

In a report, WhiteOak Capital Mutual Funds said, "over the years, the Systematic Investment Plan (SIP), a feature offered by Mutual Funds, has 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."

WhiteOak's note further said, "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."

WhiteOak explains how frequency, date, or even ideal investment horizon doesn't matter in SIPs. Here's what you need to know:

Which date?

Questions like whether should you start your monthly SIP either at the start of a month, or middle of a month, end of the month, or whether it should begin near the last Thursday of a month due to higher volatility because of F&O expiry, or whether you should simply split SIP amount into multiple dates in a month? If you ponder upon these questions, chances are you might miss a great opportunity in investing in SIPs. That is because there is no meaningful difference in the date of when you begin your monthly SIP.

WhiteOak's note 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."

According to their data between September 1996 to September 2022, the SIP return varies from 15.7 to 15.8% irrespective of monthly SIP data. Overall, the SIP return is atleast 15.8%, no matter which date is selected to begin monthly SIP.

WhiteOak explains how frequency, date, or even ideal investment horizon doesn't matter in SIPs.
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WhiteOak explains how frequency, date, or even ideal investment horizon doesn't matter in SIPs. (WhiteOak Capital MF report)

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

Which SIP frequency?

Should you rather select daily SIP, weekly or monthly? In either case, a fixed amount agreed upon between you and the fund managers will be deducted from your bank account and invested in diversified mutual fund schemes.

According to WhiteOak analysis, all three frequencies end up generating somewhat similar returns (% XIRR).

For instance, even if an investor infuses 1,000 on a daily basis, or over 4,700 on a weekly, and over 20,600 on a monthly basis. The data shows that SIP returns are around 14.3% for all three frequencies.

According to WhiteOak analysis, all three frequencies end up generating somewhat similar returns (% XIRR).
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According to WhiteOak analysis, all three frequencies end up generating somewhat similar returns (% XIRR). (WhiteOak Capital MF report)

As per WhiteOak, starting a SIP early and running it for the long term is more important than what frequency one selects!

Further, WhiteOak's note explains that "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 also said that waiting for the right time to invest can lead to missed opportunities.

Also, not investing at all is a more significant loss than entering an unfavorable market. WhiteOak's note said, even the worst market timing will help grow wealth.

In simple words, WhiteOak said, It’s time in the market, not timing the market."

Large Cap, Mid Cap, or Small Cap SIP?

As per WhiteOak's analysis, an average Large Cap stock is generally less volatile than an average Small and Mid Cap stock and provides stability to the portfolio. However, the Small and Mid Cap (SMID) segments may offer many opportunities for potential higher growth in the long run.

The Small and Mid Cap (SMID) segments may offer many opportunities for potential higher growth in the long run.
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The Small and Mid Cap (SMID) segments may offer many opportunities for potential higher growth in the long run. (WhiteOak Capital MF report)

Also, the report said, the mid Cap segment can be a good investment option for investors seeking to invest via the long-term SIP route!

Which investment horizon?

The report explained that expert equities have proved to be a volatile asset class in the past. But, the study reveals volatility reduces as investors increase their investment horizon.

"Longer the Investment Horizon, Higher is the Probability of receiving decent Returns!," WhiteOak's note added.

Study reveals volatility reduces as investors increase their investment horizon.
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Study reveals volatility reduces as investors increase their investment horizon. (WhiteOak Capital MF report)

On its website, AMFI states that SIPs is an investment plan (methodology) offered by Mutual Funds wherein one could invest a fixed amount in a mutual fund Scheme periodically at fixed intervals - say once a month instead of making a lump-sum investment. The SIP installment amount could be as small as 500 per month. SIP is similar to a recurring deposit where you deposit a small /fixed amount every month. SIP is a very 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.

 

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

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