Every person investing in mutual funds through Systematic Investment Plan (SIP) sometimes has this question in their mind that which date of the month will be most beneficial to invest? Is it better to start SIP at the beginning of the month (like 1st or 5th) as soon as the salary comes, or is it better to invest at the end of the month (like 25th) when there is a possible fall in the market?
If you too are looking for a magical date that will change your destiny, then a recent and historical research by WhiteOak Capital Mutual Fund will break all your illusions. The fund house has done an in-depth analysis of the Sensex data of the last 30 years (from 1993 till now), the results of which are very shocking.
30 years figure
Generally, investors feel that due to selling or fluctuations in the market at the end of the month, NAV gets cheaper, which can lead to higher profits in the long term. But 30 years of historical data tells a different story. According to research, if an investor did SIP (based on 10-year rolling returns) on different dates of every month for the last 30 years, there was no significant difference in their average returns (XIRR):
- Beginning of the month (1st to 5th): Average returns stood at around 15.22%.
- Mid of the month (12th to 15th): Average returns were around 15.26%.
- End of the month (25th to 28th): Average returns stood at around 15.24%.
Time is the real king, not date.
It is clear from this data that the difference in returns between the beginning, middle or end of the month is only 0.02% to 0.04%, which is completely negligible in a long-term portfolio. The main reason behind this is cost averaging, the basic principle of mutual funds. When you do SIP for a long term like 10, 15 or 20 years, all the market fluctuations (both up and down) are automatically averaged out. Therefore, trying to time the market proves to be completely futile.
Which date is best for you?
Financial experts believe that the best date for SIP is the one which suits your financial situation. It is best to choose the date within 3 to 5 days of crediting the salary account. This allows the money to be invested in a disciplined manner even before it is spent. At the same time, businessmen can choose any date of the month when the cash flow in their business is best.
