Many a time investors ask – “What is the right date for my SIP“ or “Can I get higher returns by spreading the mutual fund SIP across multiple dates”?? The answer is “SIP date does matter” (we will explain this later in this blog, till then hold your horses) but it depends whether you want to milk your investment to the last drop or you prefer the convenience of selecting SIP date at the start of the month, when your salary gets credited.
We are going to explain how the return on your investment changes if you split your Mutual Fund SIP amount across multiple dates or choose the same SIP amount on different dates. We have analyzed this across sub-categories and will be showing you with few examples from Large Cap, Mid Cap, Small Cap, and Banking (thematic) categories.
SIP enhances your return through Rupee Cost Averaging
Systematic Investment Plan (SIP) is a recurring investment of a fixed amount that directly gets debited from your account on a predefined date. However, it enables you to lower the average cost of your investment and reduce the risk of your investment by spreading your purchase price over time, through rupee cost averaging. Extending the same argument further, one can suggest that by spreading your mutual fund SIP over multiple dates in a month, you can take advantage of intra-month or intra-week volatilities.
SIP date selected at the month-end can provide 30-40bps higher annualized return
The above table shows that if you had selected the SIP date as 22nd or 25th of every month rather than the beginning of the month, you could have earned 30-40bps extra annual return on your investment. Similarly, if you spread your SIP amount in 3-4 tranches rather than putting in one shot when your salary gets credited, you can earn a slightly higher annualized return.
Return comparison: Case A (SIP going on 1st) & Case B (SIP split into 4 tranches – 8th, 15th, 22nd & 25th)
For the benefit of all our readers, we have analyzed MF return through the SIP route with a single monthly installment versus spreading SIPs over multiple dates in a month or opting for the ideal date for your SIPs which can potentially provide higher returns. Although 30-40bps extra return might seem very insignificant, it will definitely have a bigger impact if your investment horizon is slightly longer. We need to look at this along with the right portfolio mix, where alpha (additional risk-adjusted return) can be much higher vis-a-vis your passive SIP investment strategy.
The objective of this analysis is to drive the message that an active SIP investment strategy can pay-off by providing you a higher return on your investment. This is just an illustration where one variable can add an additional alpha of 30-40bps to your portfolio. In fact, we as a wealth advisory firm, construct a portfolio for our clients in line with his/her risk appetite. We use an in-house developed fund ranking and recommendation logic to arrive at a unique portfolio for our clients.
Mr. Saday Sinha is Founder & CEO of DreamLadder Capital, a boutique wealth advisory firm. He is a seasoned investment professional with over 15 years of experience in the Indian Equity market. He has spent a decade tracking the banking and NBFC sector as part of the Equity Research team at Kotak Securities. He also worked with IDFC as an Analyst with the India Equity Strategy team. He holds a Master's degree in Economics from Delhi School of Economics and is an alumnus of Jamnalal Bajaj Institute of Management Studies, (Mumbai), with specialization in Finance.
He writes for various magazines & Newspapers and his valuable opinion has also been sought by news channels like CNBC, ET Now or Bloomberg, in the past. He also speaks at seminars & conferences and lectures at Management institutes.