We received an overwhelming response to the SIP analysis we released last week (If you haven’t read it, please check out Daily, weekly, or monthly SIPs and our other articles on SIPs: SIPs in debt funds, When you can invest lumpsum instead of SIP, and SIP or lumpsum on switching). As promised last week, we’re back addressing yet another popular question on SIP. Which date is the best for SIPs?
There are several reasons that investors have in favour of tweaking the SIP dates. These include avoiding SIPs in the first week as most of the salaries are paid in the first week and any mismatch between salary credit and SIP date can see your SIP bounce to preferring a SIP date in the last week as there could be volatility related to derivative expiry. To see if these arguments hold merit, we ran a detailed analysis.
What do the numbers say?
To analyse SIP returns for various dates, we selected three dates: 5th, 15th, and 25th. We have looked at the data for a 15 year period, sliced it to see returns in different market cycles and different SIP periods – just as we did in our earlier SIP frequency article. We have looked into:
- Three 5-year periods: Jan 2005 to December 2009, Jan 2010 to December 2014, Jan 2015 to December 2019
- Two 10 year periods: Jan 2005 to December 2014 and Jan 2010 to December 2019
- And one 15 year period: Jan 2005 to December 2019
And like in our earlier analysis, we used the Nifty 100 and Nifty 500 to avoid fund-specific biases and consider different market capitalisation ranges.
The table below summarizes the returns (IRR) generated in each of these time buckets with selected SIP dates.
From the result, we can see that indeed the returns on SIPs made on 25th scored slightly higher in all observations. But before you jump to change your SIP date, know that the difference in returns is small. In our view, this marginally higher return is not enough to declare the 25th as the ‘best’ SIP date.
Putting it in actual amounts can help understand better.
Let’s say you were investing Rs 10,000 per month in the Nifty 100 from Jan 2011 to December 2020. The total amount invested will be Rs 12,00,000. The value at the end of December 2020 will be:
For SIP Investments done on 5th: Rs 22,06,865
For SIP Investments done on 15th: Rs 22,05,085
For SIP Investments done on 25th: Rs 22,08,778
As you can see, the difference in your investment value at the 5th and 25th of the month is less than Rs 2,000, and that’s on an investment amount of Rs 12 lakh. There is, therefore, no strong case for a specific SIP date. Any date will work – so pick what’s most convenient for you.
There will be minor differences in the comparative returns based on the period under observation. However, the bottomline is that the final corpus generated will be comparable irrespective of the SIP dates chosen.
We did this analysis with only 3 SIP dates. If you wish to do more analysis with different dates and duration before making an opinion, use the spreadsheet given below.
Monthly SIP Calculator spreadsheet
In the spreadsheet, set the ‘From’ and ‘To’ dates for analysis: For example: to select the period 01-01-2005 (1 Jan 2005) to 31-12-2019 (31 Dec 2019) for analysis, provide input as below:
Enter the monthly SIP amount in the appropriate cell provided. Select the two SIP dates you want to compare. The total invested value, Final value, and Internal Rate of Returns will be calculated and displayed as below.
What if you have multiple SIPs?
But what if you did a bit of everything? Another common question many of you wonder is whether you could maximise returns by splitting your SIP up into smaller amounts and run multiple SIPs. To see if this makes any difference in returns, we analysed two cases:
Case 1: Running 2 SIPs of Rs 5,000 each on the 5th of the month in Nifty 100 and Nifty 500.
Case 2: Running a SIP of Rs 5,000 on the 5th of the month in Nifty 100 and another SIP of Rs 5,000 on 25th in Nifty 500
We looked into:
- Three 5-year periods: Jan 2005 to December 2009, Jan 2010 to December 2014, Jan 2015 to December 2019
- Two 10 year periods: Jan 2005 to December 2014 and Jan 2010 to December 2019
- And one 15 year period: Jan 2005 to December 2019
The table below summarizes the returns (IRR) generated in each of these time buckets under both cases.
To look into an example case: For the period Jan 2011 to December 2020, the total amount invested in both Case 1 and Case 2 will be Rs 12,00,000. The value at the end of December 2020 will be:
- Case 1: Rs 22,10,122
- Case 2: Rs 22,12,128
Again, as you can see, spreading out SIPs on different dates within a month does not give you any special advantage. As with daily SIPs, too many SIP frequencies can work against averaging.
Here too, note that there will be minor differences in the comparative returns based on the period under observation.
However, if you still do want to catch opportunities through the month, our suggestion would be this – first, Keep in mind that you will have to keep track of how much cash will be debited throughout the month and ensure that there’s a sufficient balance sitting in the account. Second, such multiple SIPs may be more useful if your monthly SIP amount is large. Third, don’t run SIPs in all funds on each date and instead set a different SIP date for each fund. For instance, say you have a Rs 20,000 SIP split equally in 4 funds and you want to use the 5th and the 25th. Then, set the SIP date for 2 of the funds on 5th and the other two on 25th. In this case, you can consider using the 25th for equity funds.
Conclusion
As said before, an SIP scores in its simplicity. Setting a single date for your SIP reduces the hassle for you, and setting it close to your payday makes it easier to ensure that your investing happens before any spending does. Whether you select multiple dates or a single date, make sure you continue SIP. Don’t lose sight of the biggest SIP benefit, which is that you’re investing. This is more important than how frequently you set the SIP or at what date of the month you are investing.
P.S. If you regularly find your bank account empty by month-end with all the online shopping you’ve done, definitely avoid SIP dates of the last week of the month 🙂
