If you are planning to invest in a mutual fund, then the better way to do is through an SIP (systematic investment plan) instead of lumpsum.
An SIP can help you average out the cost of acquisition of mutual fund units, thus maximising your chances of earning higher returns.
There are some investors, meanwhile, who believe that investing in an SIP on a particular date makes a difference to wealth creation. For instance, does it matter whether the date of SIP is 7th or 15th?
Well, there are several theories on it but the experts do not support any of those.
Time over timing
One wealth advisor we spoke to argues that it is the ‘time’ instead of ‘timing’ of investment which determines long-term wealth creation.
“Time to market is not what makes your long-term wealth whereas it’s how much time you were in the market is. So, investors should focus on continuous investing and stay invested for a long period to create wealth. There are several studies carried out to find out whether it makes a difference to choose a particular date of investment. And it has been found that it does not impact the corpus. That’s why, investors are recommended to choose any date for SIP,” says Preeti Zende, a Sebi-registered investment advisor and founder of Apna Dhan Financial Services.
“If you fear spending your salary early then select the first week for the SIP to make sure you invest before you spend or else you can spread your SIPs over a month to get investments done at different market level,” she adds.
Key factors which impact wealth creation
Rupee cost averaging: Since the purpose of SIPs is to average out the cost of investment over time, the exact date of investment would barely leave any impact. Over a long period, markets tend to remain volatile, therefore, the impact of averaging phases out minor differences in the net asset value (NAV).
During weekends: If the date of SIP falls on a weekend or on a holiday, the buying will happen on the next business day, which may lead to a slightly different NAV.
Other short-term consideration: Certain studies and reports also suggest that certain dates could result in a relatively higher returns on account of market cycles (such as SIPs towards the end of the month tend to fetch a higher NAV). However, this effect is often marginal.
Salary day: Many investors prefer to set the SIP date soon after their salary is credited (e.g., first to seventh of the month) to make sure that adequate funds are available in the bank account.
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