What is a ‘Successful’ SIP Investment in Equity Mutual Funds?

WhiteOak Capital Mutual Funds said in a report, “Over the years, systematic investment plans (sip), a facility offered by mutual funds, has become a household name. Its popularity among investors can be seen from the adjoining graph, which shows the increase in monthly SIP contribution by investors over the last six years.”

WhiteOak’s note further states, “A successful SIP is more about an “early start”, maintaining the discipline of “investing regularly”, for the “long term” to achieve our “financial goals”. Investing and less about “what date”, “what frequency”, etc.”

WhiteOak explains how frequency, date or ideal investment horizon does not matter in SIPs. Here’s what you need to know:

which date?

Questions such as whether you should start your monthly SIP at the beginning of a month, or in the middle of a month, at the end of the month, or should it start near the last Thursday of the month due to high volatility due to F&O expiry Should it be, or should you just split the SIP amount across multiple dates in a month? If you consider these questions, there are chances that you may miss out on a huge opportunity to invest in SIP. This is because there is no significant difference in the date when you start your monthly SIP.

“We attempted to answer these commonly asked questions using long-term data from the S&P BSE Sensex TRI (a widely tracked Indian equity market index),” WhiteOak’s note said. A study of the index data for the last 26 years does not reveal any significant difference between the average returns of 10 years SIPs of different dates.”

According to their data for the period September 1996 to September 2022, SIP returns range between 15.7 and 15.8 per cent, irrespective of the monthly SIP data. Overall, the SIP return is at least 15.8%, no matter which date is chosen to start the monthly SIP.

In the view of WhiteOak, “The best SIP date in our view is when an investor usually receives money in his/her bank account (e.g. salary credit days).”

Which SIP frequency?

Should you choose daily SIP, weekly or monthly? In any case, a certain amount agreed 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 generate somewhat similar returns (% XIRR).

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

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According to WhiteOak, starting the SIP early and running it for a longer duration is more important than what frequency one chooses!

Furthermore, WhiteOak’s note states that “only from a retrospective will we know which would have been the best day to invest over the course of a month.

It is impossible to time the market levels consistently.” It also said that waiting for the right time to invest may miss opportunities.

Plus, not investing at all is a more significant loss than entering an unfavorable market. “Even the worst of the market times will help the money grow,” WhiteOak’s note said.

Simply put, Whitehawk said, it’s market time, not market time.”

Large cap, mid cap or small cap SIP?

According to 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) segment can provide many opportunities for potentially higher growth in the long run.

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Also, the report states that the mid-cap segment can be a good investment option for investors looking to invest through the long-term SIP route!

Which investment horizon?

The report noted that specialist equities have proved to be a volatile asset class in the past. But, studies show that volatility decreases as investors broaden their investment horizons.

“The longer the investment horizon, the higher the chances of achieving good returns,” WhiteOak’s note said.

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On its website, AMFI states that SIP is an investment plan (methodology) offered by mutual funds, in which a fixed amount can be invested in a mutual fund scheme from time to time at a specified interval – making lump sum investment. Instead of once a month. SIP installment amount can be as small as 500 per month. SIP is similar to a recurring deposit where you deposit a small/fixed amount every month. There is a very convenient way to invest in mutual funds through standing instructions to debit your bank account every month, without the hassle of writing a check every time.

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