Systematic investment plans help you make the most of market volatility, average out your costs, remove the need for market timing, and, in all this, bump up your returns. By that logic, wouldn’t it be better to divvy up the amount into smaller bits and invest it at various points through the month, instead of at one go at the beginning? That’s a question quite a few of you have asked us. After all, markets are volatile over the course of a month just as much as over a year.
Well, we checked the numbers and here’s your answer. Splitting up your investments over the month doesn’t help improve your returns. It doesn’t matter whether your investment period is five years or ten. A SIP investment made once a month returns just as much as a SIP investment five times a month.
The numbers
So how did we work this out? We assumed that you had Rs 40,000 to invest in a month (note that the actual amount does not matter; the results will remain the same). In the first scenario, you made the investment on the 5th of each month. In the second scenario, you invested Rs 8,000 on the 5th, 10th, 15th, 20th and 25th of each month. In both scenarios, the period of investment was from July 2010 to July 2015.
Simply assuming that you invested in the BSE 100, the IRR of your investment today works out to 13.3 per cent in the first scenario and 13.1 per cent in the second. Not much of a difference, is there?
Even considering a moderate-risk large-cap fund, say, UTI Equity, the yield on monthly investments works out to be almost exactly that as the five-times-a-month route. See the accompanying table. Stretching the period to 10 years instead of five to allow more time for cost averaging benefits again yields the same results.
The market has not swung wildly often enough each week for benefits to accrue from investing across the month. Taking the weekly movements of the CNX Nifty or CNX 500 indices over the past ten years, the index made gains or losses of a significant margin less than half the time. This proportion is almost the same when monthly movements are calculated. As a result, you are not gaining much even if you spread investments over the course of a month.
You could argue that a large-cap fund sees lower volatility. If you recall, 2010 to 2015 has been a period marked by steep gyrations by mid-cap stocks. So can spreading out investments be effective for mid-cap funds, as they see sharper movements? Not quite.
Take the CNX Midcap index. The yield on making investments five times a month is only very slightly higher at 20.05 per cent compared to the 19.77 per cent made on monthly investments over the past five years. Running a check on HDFC Mid-cap Opportunities mirrors this same trend. The results are the same whether you invested Rs 40,000 or Rs 20,000 or any other amount.
No clear benefit
So while it may calm your mind that you are tempering risk by staggering investments over the month, there is no clear benefit in doing so. More, you already will have several bills to deal with through the month – utilities, phone, groceries and household expenses, entertainment and so on. Weekly mutual fund investments, besides other investments such as recurring deposits will simply complicate the management of your cash flows more. Monthly SIPs are simpler and more manageable.
- Discontinuation of the Systematic Investment Plan (SIP) of the Designated Schemes of MOMF
- Change in Maximum Subscription Amount of Aditya Birla Sun Life Medium Term Plan
Wealth Conversations – December 2024
Are Arbitrage Funds right for you?- Introduction Of Daily, Weekly Frequency In Sip And Changes In Default Sip Date And Minimum Investment Amount For The Groww Mutual Funds
But it is higher ,right ? even though a bit.. if you checked 10 funds, in how many cases it was higher ? if its higher in 8 out of 10 , then whats the logic of sticking with a monthly amount ? and as the portfolio grows , you don’t think 0.2 or 0.3 matters ?
Btw, A similar questions is which date of the month SIP is started. I try to do that exercise and almost 100% of them had higher returns when invested on 26th,27th of the month ? I tried 10-20 funds.. do you have an opinion on that one ?
But it is higher ,right ? even though a bit.. if you checked 10 funds, in how many cases it was higher ? if its higher in 8 out of 10 , then whats the logic of sticking with a monthly amount ? and as the portfolio grows , you don’t think 0.2 or 0.3 matters ?
Btw, A similar questions is which date of the month SIP is started. I try to do that exercise and almost 100% of them had higher returns when invested on 26th,27th of the month ? I tried 10-20 funds.. do you have an opinion on that one ?
Hello Sir,
The reason for our giving the BSE 100 index is to make a more broad representation than an illustration through a fund. 80-90% of stock picks in alrge and diversified funds happen from the BSE 100.Hence it is a good representation.
Yes true, we do mention that return from multiple SIP dates within a month is higher for a more volatile category like midcap albeit insignificantly.
Given a certain block of time, the trend would be alike for almost all funds within categories. However, if one took a block of less volatile period, or a bull rally, it would be the other way round. End of the day, even your trying to average multiple times, is again subject to the vagaries of the market and the cycle it is in. In our opinion, the hassle of earmarking cash flows through the month is not worth it given the miniscule difference. On the other hand, ploughing a lump sum in market dips such as the present one, in the existing SIPs make for better averaging, if one is confident to do that ploughing when market falls. thanks.
Thanks for the insight. I would like to know if there is any particular window (span of days) of the month during which sensex or nifty is generally at the lowest levels of the month.it may not be 100% of the time but any observation we can make looking at last 10 yrs or so? This may be interesting to see if there is any difference if sip is made lets say 5th of every month vs. Sip on the days when its generally lowest (lets say something like 25-30th of every month.) Is it possible to share some data on this plz?thanks
Dear Rishit,
We’ll take up your question in a separate post, so we can give a more detailed analysis. Thanks, Bhavana
Please try last Thursday of the month.
I differ with this article. you have compared UTI equity a large cap fund which is less volatile and HDFC mid cap fund which has been a consistent performer. But if you compare other funds like SUNDARAM midcap , DSP blakrock equity, RELIANCE growth, ICICI dynamic plan, ICICI indo asia , you can see a different return. In my experience if you want to invest Rs 5000 SIP every month, split in to 1000 each in one multi cap, Two large cap , one balanced and one mid cap in different dates which will have a balanced approach towards our goal .
Yes, you’re correct; you need a balanced approach across fund types to reach your goal. What we’re saying here is that for a given fund, the difference between weekly SIPs returns versus SIPs made once a month is very low. This holds good across funds. The result will be the same no matter the combination of funds invested. One can do it, of course. Our opinion is simply that it does not seem to reap huge benefits and it can become cumbersome to manage cash-flows, if one is not diligent.
Very nice article….And a real eye opener..
Very nice article….And a real eye opener..
Hi, you are correct, from the market perspective multiple SIP’S don’t yield much compared to SIP’s done once a month. But nowadays bank pay interest on daily balance and if you have a large SIP amount then multiple SIP really stand out against the single SIP.
Yeah, I agree that one has to be vigilant while managing cash flow for multiple SIP.
Hi, you are correct, from the market perspective multiple SIP’S don’t yield much compared to SIP’s done once a month. But nowadays bank pay interest on daily balance and if you have a large SIP amount then multiple SIP really stand out against the single SIP.
Yeah, I agree that one has to be vigilant while managing cash flow for multiple SIP.
Hello Raj, It is true that SB rates are calculated on daily balance as opposed to the lowest balance 5 years ago 🙂 Howver, interest is no compounded daily. SO it is no big deal. Also, this is still far inferior to ploughing money in mutual funds and seeing it compund every single day. Just wanted to ass that point. thanks for commenting!
Vidya
Why SIP deal on a particular day in a month???
Why SIP deal on a particular day in a month???
Hi, you are correct, from the market perspective multiple SIP’S don’t yield much compared to SIP’s done once a month. But nowadays bank pay interest on daily balance and if you have a large SIP amount then multiple SIP really stand out against the single SIP.
Yeah, I agree that one has to be vigilant while managing cash flow for multiple SIP.
Hello Raj, It is true that SB rates are calculated on daily balance as opposed to the lowest balance 5 years ago 🙂 Howver, interest is no compounded daily. SO it is no big deal. Also, this is still far inferior to ploughing money in mutual funds and seeing it compund every single day. Just wanted to ass that point. thanks for commenting!
Vidya
But it is higher ,right ? even though a bit.. if you checked 10 funds, in how many cases it was higher ? if its higher in 8 out of 10 , then whats the logic of sticking with a monthly amount ? and as the portfolio grows , you don’t think 0.2 or 0.3 matters ?
Btw, A similar questions is which date of the month SIP is started. I try to do that exercise and almost 100% of them had higher returns when invested on 26th,27th of the month ? I tried 10-20 funds.. do you have an opinion on that one ?
Hello Sir,
The reason for our giving the BSE 100 index is to make a more broad representation than an illustration through a fund. 80-90% of stock picks in alrge and diversified funds happen from the BSE 100.Hence it is a good representation.
Yes true, we do mention that return from multiple SIP dates within a month is higher for a more volatile category like midcap albeit insignificantly.
Given a certain block of time, the trend would be alike for almost all funds within categories. However, if one took a block of less volatile period, or a bull rally, it would be the other way round. End of the day, even your trying to average multiple times, is again subject to the vagaries of the market and the cycle it is in. In our opinion, the hassle of earmarking cash flows through the month is not worth it given the miniscule difference. On the other hand, ploughing a lump sum in market dips such as the present one, in the existing SIPs make for better averaging, if one is confident to do that ploughing when market falls. thanks.
Thanks for the insight. I would like to know if there is any particular window (span of days) of the month during which sensex or nifty is generally at the lowest levels of the month.it may not be 100% of the time but any observation we can make looking at last 10 yrs or so? This may be interesting to see if there is any difference if sip is made lets say 5th of every month vs. Sip on the days when its generally lowest (lets say something like 25-30th of every month.) Is it possible to share some data on this plz?thanks
Dear Rishit,
We’ll take up your question in a separate post, so we can give a more detailed analysis. Thanks, Bhavana
Please try last Thursday of the month.
Very nice article….And a real eye opener..
Why SIP deal on a particular day in a month???
I differ with this article. you have compared UTI equity a large cap fund which is less volatile and HDFC mid cap fund which has been a consistent performer. But if you compare other funds like SUNDARAM midcap , DSP blakrock equity, RELIANCE growth, ICICI dynamic plan, ICICI indo asia , you can see a different return. In my experience if you want to invest Rs 5000 SIP every month, split in to 1000 each in one multi cap, Two large cap , one balanced and one mid cap in different dates which will have a balanced approach towards our goal .
Yes, you’re correct; you need a balanced approach across fund types to reach your goal. What we’re saying here is that for a given fund, the difference between weekly SIPs returns versus SIPs made once a month is very low. This holds good across funds. The result will be the same no matter the combination of funds invested. One can do it, of course. Our opinion is simply that it does not seem to reap huge benefits and it can become cumbersome to manage cash-flows, if one is not diligent.