Systematic Investment Plan: According to Motilal Oswal report, the key to the success of SIP is discipline and long-term thinking. Regular investment affects returns, continuity of investment is more important than date.
Systematic Investment Plan: Can the date of investment in Systematic Investment Plan (SIP) affect your returns? This question confuses many investors, but in a recent report, Motilal Oswal Asset Management has tried to shed light on this myth through data.
The latest report of Motilal Oswal Asset Management Company (AMC) has described Systematic Investment Plan (SIP) as the most effective way to achieve financial goals in the long term. According to the report, if an investor makes SIP every month in Nifty 500 index for 10 years, then there is only a difference of 1.13% in the returns of those who invest at the highest and lowest price of the month. A report by Economic Times also underlines that regular investment is more beneficial than trying to time the market.
Understand from the table
| Investment period | Effect of date selection on returns |
|---|---|
| 1-2 years | The impact of market timing is high |
| 5 years | About 3% |
| 10 years | About 1.13% |
| 15 years | About 0.7% |
| 20-25 years | About 0.6% |
difference between short term and long term
The shorter the investment period in SIP, the more market timing can affect returns. For example, in a SIP of one or two years, market fluctuations affect returns. But as the investment period increases, the effect of date decreases. In a 5-year SIP, the effect of date on returns is about 3%, whereas in a period of 15, 20 or 25 years, this difference reduces to 0.7% or 0.6%. That is, for long-term investors, it does not matter on which date the SIP was started.
Motilal Oswal’s report also states that the real mantra of success of SIP is discipline, patience and long-term thinking. If investors invest regularly according to their financial goals, then their mindset rather than date is the real determinant of returns. The report has suggested to investors that instead of making excessive strategies regarding date, it is better to run SIP with continuity and simplicity. This will help them get good returns despite market fluctuations.
The biggest advantage of SIP is its cost averaging effect. When the market goes down, the investor can buy more units at a lower price, and when the market goes up, the value of the units bought earlier increases. In this way, in the long term, SIP gives stable returns while balancing the market fluctuations.
