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Many rookie mutual fund investors often invest time on small things that they feel will have a big impact on the outcome.
One such example is selecting the date for their monthly Systematic Investment Plans (SIPs).
Since the SIP approach aims to realise the benefit of lowering the cost of investments, some think investing on particular dates can lead to a higher accumulation of mutual units and, consequently, higher returns.
In our recent app reviews, we noticed a few fintech mobile applications trying to help investors in this aspect by sharing information on the returns a particular fund has generated when SIPs were made on a given date every month.
Paytm Money, for instance, provides values that indicate the difference between returns from SIP on a particular date and the average returns of SIPs on all allowed dates for that month, in the last 12 months.
A few other personal finance portals also suggest investing in SIPs on dates closer to the expiry of Futures & Options (F&O), given the volatility on such dates. These seem like efforts to maximise investor return, even if it is by a 10th of a percentage point!
Not a great idea
Numerologists believe lucky numbers can bring people good luck. In some cultures, gifts are given in even numbers.
These, however, don’t hold a meaning in the world of financial investments. The theory of buying more units (and earning higher returns later) if SIPs are made on a particular day every month may not be sound.
Returns of mutual funds are market-linked and depend on the portfolio constituents. It is highly unlikely that prices of the securities will move in the same fashion every month on a particular date.
Also, do remember that the day-wise returns indicated by the apps are historical in nature — past performance may not be indicative of future results.
In fact, trying to time the market by SIP-investing on a ‘special date’ is, in itself, an antithesis to the very concept of SIPs. By investing in smaller portions at regular intervals through SIPs, investors already optimise returns through rupee cost averaging (averaging cost of investment).
How to decide
Choosing the dates for your monthly SIP mandate need not be left to the theory of randomness.
Having said that, choosing the dates at the fag end of the month might not be everyone’s cup of tea as we all have expenses to meet, which may leave us short of funds. Even those who wish to make use of the market volatility on F&O expiry dates may set SIP dates towards the end of the month only if they are confident of maintaining sufficient balance till then.
The SIP date should ideally be after the day you receive your monthly income.
So, one should choose the SIP date on the basis of the income inflow every month.
To maintain the investment discipline, one should ideally prioritise long-term investments over discretionary spends by scheduling SIPs immediately after the salary credit.
Having said that, be sure to set aside sufficient funds for other important commitments as well. You may consider paying your monthly obligations first, such as rent, EMIs and utility bills, before earmarking funds for SIP investment. Missing out on such monthly obligations might have serious repercussions when there is a cash crunch.
In the case of a SIP mandate, there is not much penalty (except bank charges for dishonouring ECH/NACH mandate).
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