Over the years, the Systematic Investment Plan (SIP), a feature offered by Mutual Funds, has become a household name. With growing interest in SIP, a few obvious questions come to an investor's mind.
FAQ 1: Best date for monthly SIP?
Start of the Month? End of the Month? Middle of the Month? Near the Last Thursday of the month because of higher volatility due to F&O expiry? Splitting SIP amount into multiple date SIPs?
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.
Conclusion: The best SIP date in our view is when an investor usually receives money in his/her bank account (For Eg. Salary Credit Day).
FAQ 2: Daily/ Weekly/ Monthly SIP?
Historical data analysis shows all three frequencies generate somewhat similar returns
Conclusion: Starting a SIP early and running it for the long term is more important than what frequency one selects!
FAQ 3: SIP in Largecap, midcap or Smallcap?
Generally, largecap funds are generally less volatile than an average mid or smallcap fund. However, a mid & small cap fund may offer many opportunities for potential higher growth in the long run.
Conclusion: Mid Cap segment can be a good investment option for the investors seeking to invest via the long-term SIP route!
FAQ 4: For how long to continue SIPs for good results?
Experts often suggest investors invest for the “Long-term,” but what exactly is “Long-term”? What is the “Ideal Investment Horizon”? Or is there anything called an “Ideal Investment Horizon”?
Equities have proved to be a volatile asset class in the past. But, the study reveals volatility reduces as investors increase their investment horizon.
7 years and more should be the ideal SIP investment horizon. Longer the Investment Horizon, higher is the probability of receiving decent Returns!
FAQ 5: Isn’t it better if I invest on dips every month rather than invest via automatic fixed-date SIPs?
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.
Waiting for the right time to invest can lead to missed opportunities
Not investing at all is a more significant loss than entering an unfavorable market.
Even the worst market timing will help grow wealth
Conclusion: It’s time in the market, not timing the market.
Source: Whiteoak Capital Mutual Fund