Systematic Investment Plan
A question that often comes to the mind of people investing in mutual funds is whether they start SIP on 1st or 10th or 20th of the month, does it make a difference in the returns? At first glance this question seems very important, but its answer is a bit interesting.
If we understand in simple words, the date of SIP definitely has an impact on the returns, but this impact is so small that it does not have much meaning in the long run. It has been observed in many investment analyzes that despite starting SIP on different dates, the returns remain almost the same. That means whether you invest at the beginning of the month or in the middle, the result of your investment will be almost the same.
Actually, the advantage of SIP lies in investing over time, and not in the choice of date. When you invest regularly every month, the effect of market fluctuations is automatically balanced. This is called rupee cost averaging. This means that when the market is down you get more units and when the market is up you get less units. In this way your average investment cost becomes balanced.
On which factors do returns depend?
Now the question arises that if the date is not so important, then what does the return depend on more? There is a direct answer to this. The simple answer is your investment discipline and timing. How long you continue SIP is the biggest factor. Apart from this, which mutual fund scheme have you selected, whether you increase the investment amount every year or not, and what is your risk appetite. All these things together affect your returns. Continuity is most important in SIP. If you keep investing every month without stopping, then the benefits of compounding start appearing over time. This is why even small amounts can create a big fund in the long run.
How to choose SIP date
Now let’s talk about how to choose the right date for SIP. The best way to do this is to understand your cash flow. If your salary comes at the beginning of the month, it would be wise to set up SIP at that time. With this, there will be enough money in your account and chances of missing SIP will be less. Whereas if your income comes in the middle of the month, then decide the date accordingly.
The most important thing is that do not decide the date of SIP by looking at the market. It is almost impossible to predict accurately when the market will go up or down. Therefore, choose a date which is convenient for you and which you can maintain continuously for a long time. In the end, it is important to understand that the mantra of success in SIP is not the right date, but the right habit, regular investment and patience. If you have both of these, then small differences in dates automatically disappear.
