The aspect of getting exposure to a wide variety of assets in a single scheme without investing a big sum can be a lucrative deal for many. Retail investors may be overjoyed with such a deal. It is one of the factors responsible for the growing popularity of mutual funds in India.
Its facility of Systematic Investment Plans or SIPs that require investors to invest a fixed sum at regular intervals is a suitable setup for investors. Its small investment amount is usually a feasible sum for almost all classes of investors.
The SIP data in recent years indicates that Indians are getting accustomed to this unique investment pattern. In 5 years, the SIP contribution has grown more than 200% as of November 2024 (Source: AMFI).
However, planning aspects such as amount, frequency, and date can be crucial tasks. However, there are some factors and common myths affecting the process of selecting the SIP investment date. Let’s decode them in detail.
Mutual fund SIP
Savings and investment are an inseparable part of human life these days. Disciplined investment becomes the backbone for difficult times. A modern technique for this is mutual fund SIP. Here, investors can invest a small chunk of their incomes regularly in a professionally managed scheme to get exposure to different assets under one head.
This method provides market exposure at a minimum cost and comparatively lower risk. While planning for SIP investments, one needs to select the amount, SIP start date and frequency. After this, investors will select between manual and auto-debit plans.
Usually, to avoid missing an SIP investment date, investors prefer an auto-debit plan, which will also eliminate the penalty risk on such a miss. SIPs are a unique way to average the cost over an investment period and compound investments gradually. However, certain aspects, such as SIP dates, which can be an impulsive decision, can make a significant impact on the overall financial planning.
Must read: SIP investment: Your path to wealth building
Which is the best SIP date?
There is no thumb rule or benchmark for the best SIP date. Experts may differ on this opinion. Investing in mutual funds may be a seamless process by considering some factors while selecting the SIP start date:
- Income credit date: To have sufficient balance for investment, one can plan the SIP after receiving regular income, such as salary. SIPs are frequent investments and using reserves for the same may not be a good idea. Therefore, one can plan the SIP investment date nearest to the salary credit date to avoid excess income usage.
- Future financial goal: If an investor has a specific future goal and financial assistance for SIP investments, one can plan the date accordingly.
- Other mandatory expenses: Some crucial monthly obligations, such as loan instalments, can hinder the usage of funds for a specific date. In such a case, one can plan SIP after this date to avoid missing any instalments.
The start date will be replicated every month. For example, if you start the SIP on October 2nd, the next investment date would be September 2nd and so on for other months.
Why is selecting SIP date important?
SIPs may seem to be a gradual investment, but they can make a strong impact on the overall cost of investment. In the short term, SIPs can affect the total returns due to market fluctuations such as announcements of economic indicators and financial results, geopolitical factors, product-specific situations, market cycles, etc. However, this effect is adjusted in the long term.
Due to a lack of funds or other inconvenience, an investor may miss a SIP investment. In such situations, the fund house may charge some penalty if the SIP date is missed up to 3 months. Moreover, one also cannot change the SIP date after starting it. Therefore, planning for the best SIP date is crucial.
Common myths and their reality
- SIP dates will affect the scheme’s performance.
SIP investment date is an important factor, but it cannot create much significant impact on the investment performance in the longer run. Moreover, the past performance of mutual fund schemes does not guarantee any trend for future performance. Therefore, investors should prefer their suitability for the investment date.
- Investors can time the market with SIP dates.
Almost every investor seeks to time the market to earn potential returns. However, it is a near to impossible aspect. The market is affected by varied factors, and timing them all together is a hefty task. Therefore, investors cannot time the market with SIP dates.
- Some SIP investment dates will attract penalties from the fund house.
Fund houses will only penalise the investors when they miss the SIP for up to 3 months. Moreover, this period may also be different for different fund houses.
Check this out! Top SIP Plans to Invest in 2024 for Strong Financial Future
Bottomline
Indians are growingly becoming comfortable with SIP investments as it provides them exposure to a vast variety of assets with minimal investment. Selecting the best SIP date can be an important process as it cannot be changed or missed. Investors should select the same based on their suitability of cash flow and other factors.
Explore more: SIP vs PPF: How to invest regularly?
FAQs
- What happens if we miss a SIP date?
Usually, SIPs have an auto-debit facility to combat the risk of missing an SIP. However, due to a lack of funds or a manual SIP process, one may miss the date. In such a case, investors may have to pay a penalty to the fund house. Usually, this penalty is levied after missing SIP dates for 3 months.
- Can the SIP date be changed?
No, once selected, a SIP date cannot be changed. Investors need to stop this SIP or sell the investment before the change. Further, investors can start a new SIP at a feasible date.
- How do I select my SIP date?
Before starting a mutual fund SIP, investors may be required to assess certain factors such as SIP amount, the income earning date (salary credit date), other expenses such as loan instalments, etc.
- Does the SIP date affect the returns?
In the short term, investors may experience a significant change in the performance of a scheme due to business cycles or market events such as economic data announcements. However, in the long term, this effect becomes negligible.
- What is the difference between lump sum and SIP investment?
The main difference between these terms is due to their frequency. A lump sum investment is a one-time expense and does not require frequent efforts. While the SIPs are done at frequent intervals such as monthly or quarterly.
