This article was originally published in May 2021. We are now republishing it for the benefit of our newer subscribers.
With investors gaining a greater appreciation of the benefits of disciplined investing that starts early in one’s life, more and more are jumping onto the SIP bandwagon. Naturally, many of you have questions relating to the nitty gritty of SIPs and we try to answer them and support our answers with analysis. We received an overwhelming response to the SIP analysis that we did. (If you missed 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, we’re back addressing yet another popular question on SIP – Which date is the best for SIPs? If you too have been wondering if picking one date over another will make a difference to your investments, this article will address that for you.
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 2008 to December 2012, Jan 2013 to December 2017, Jan 2018 to December 2022
- Two 10 year periods: Jan 2008 to December 2017 and Jan 2013 to December 2022
- And one 15 year period: Jan 2008 to December 2022
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 Rs 22,05,085 for SIPs done on 15th and Rs 22,08,778 for SIPs done on 25th. As you can see, the difference in your investment values is minimal. Picking other time periods throw similar trends of minor differences between the end-values and XIRR of SIPs done on different dates. 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.
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 2008 to December 2012, Jan 2013 to December 2017, Jan 2018 to December 2022
- Two 10 year periods: Jan 2008 to December 2017 and Jan 2013 to December 2022
- And one 15 year period: Jan 2008 to December 2022
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 2013 to December 2022, the total amount invested in both Case 1 and Case 2 will be Rs 12,00,000. The value at the end of December 2022 will be:
- Case 1: Rs 23,21,972
- Case 2: Rs 23,21,474
Again, as you can see, spreading out SIPs on different dates within a month does not give you any special advantage. Changing the time period can show the multi-date SIP wind up with higher value than a single-date SIP – but like it is in the example above, the difference is negligible. 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 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 your SIP – that is more important than picking the ‘right’ date or frequency. Don’t lose sight of the biggest SIP benefit, which is that you’re investing to build wealth.
P.S. If you regularly find your bank account empty by month-end with all the shopping you’ve done, definitely avoid SIP dates of the last week of the month 🙂
