Timing the market
TLDR - Does date and frequency of SIP (Systematic Investment Plan) have an impact on the return over the long term. Will try and answer this question in this post.
I have seen several posts and discussions around what the best date to trigger an SIP. There are arguments that investing at the start of the month are not as effective since most salaried class gets their salary at the start of the month and so many SIPs trigger on the 1st to coincide with the start of the month. So you don’t get a good price.
There are other proponents who swear by mid month SIP. Since there is generally a lull in the cycle which makes it an ideal time to invest around the “15th of each month”.
Others swear by “end of the month” is best since it is closer to expiry of derivative products which leads to a bit of a drop in price and most of the salaried class are waiting for their next month salaries and would not trigger SIPs at that time.
There are even others who swear by alternate schedules of SIP, instead of monthly, do daily/ weekly/ quarterly/ semi-annually/annually. Those alternative schedules are better as it needs more financial discipline to get it right.
How do we know which of these is the best?
Back Testing
What I have not seen in any of these “strategies” is empirical evidence in support of any of these strategies. So I decided to back test these claims by looking at actual data over a long period of time.
Scenario Baseline
I could not get daily mutual fund pricing data going back 10 years, so I am using Reliance NIFTY BEES ETF for my back testing as a proxy equivalent.
I am using the period from 1-Jan-2009 to 31-Dec-2018 - 10 years
I am using googlefinance function on google spreadsheets to get the price information for this period
I am assuming that the purchase is triggered based on the closing price for easier calculation
I am also assuming that we are able to purchase fractional values of ETFs like mutual funds.
I am using a baseline of 10,000 Rupees as the monthly investment for a period of 10 years, 120 periods. So the amounts invested for all other frequencies are aligned to get as close as 1,200,000 figure at the end of 10 years.
NIFTY BeES
Daily investment
Between 1-Jan-2009 to 31-Dec-2018, there were 2458 working days in total. So to get a whole number close to the final tally of
1,200,000/2458 = 488
So that will be our daily investment amount.
A total number of units purchased = 1834.41
Weekly investment
Between 1-Jan-2009 to 31-Dec-2018, there were 512 weeks in total. So to get a whole number close to the final tally of
1,200,000/512 = 2344
So that will be our weekly investment amount.
A total number of units purchased = 1854.44
Monthly Investment
Does the date on which the investment is made make a difference? So I looked at 3 dates in the month.
First business day of the month
Mid month, first business day after the 15th
Last business day of the month
First business day of the month
Between 1-Jan-2009 to 31-Dec-2018, there were 120 months in total. So to get a whole number close to the final tally of
1,200,000/120 = 10,000.
So that will be our monthly investment amount.
A total number of units purchased = 1865.21
Mid month
Between 1-Jan-2009 to 31-Dec-2018, there were 120 months in total. So to get a whole number close to the final tally of
1,200,000/120 = 10,000.
So that will be our monthly investment amount.
A total number of units purchased = 1859.78
Last business day of the month
Between 1-Jan-2009 to 31-Dec-2018, there were 120 months in total. So to get a whole number close to the final tally of
1,200,000/120 = 10,000.
So that will be our monthly investment amount.
A total number of units purchased = 1845.11
What about other investment timelines?
Quarterly
Between 1-Jan-2009 to 31-Dec-2018, there were 40 quarters in total. So to get a whole number close to the final tally of
1,200,000/40 = 30,000.
So that will be our quarterly investment amount. I am using the first working day of each quarter as the investment date
A total number of units purchased = 1879.74
Semi-Annually
Between 1-Jan-2009 to 31-Dec-2018, there were 20 half years in total. So to get a whole number close to the final tally of
1,200,000/20 = 60,000.
So that will be our semi annual investment amount. I am using the first working day of each half year as the investment date
A total number of units purchased = 1905.02
Annually
Between 1-Jan-2009 to 31-Dec-2018, there were 10 years in total. So to get a whole number close to the final tally of
1,200,000/10 = 120,000.
So that will be our annual investment amount. I am using the first working day of each year as the investment date.
A total number of units purchased = 2003.99
Note: I am not used weighted averages but a simple average in google sheets, so there would be some difference in the average values. But the key should be the total units that was purchased which is accurate.
Conclusion
There is not a lot of difference between the daily, weekly, start, mid or end of the month in the total number of unit accumulated. There is a small uptick in quarterly, semi annual and annual frequencies. I would attribute that more towards the state of the market given the period that we have used in question is part of financial crisis of 2009.
So this essentially proves that over a long term of 10 years there should be negligible difference in the overall performance of your SIP irrespective of which date you trigger the SIP and what frequency, be it daily, weekly or any particular day of the month.
This is in no way a comprehensive study, given that it tracks the performance of NIFTY BeES ETF only. But I would bet top dollar that it would be the same across mutual funds and stock investments over a long period.
Happy Investing.
