There are many schools of thought when it comes to investing via SIP (Systematic Investment Plan) and here are my two cents on it.

Just like everyone else, I too started SIP very very cautiously with a small amount back in 2015 when I started my job to cover my 80C limit. Franklin Templeton ELSS Tax Saver Fund was what I narrowed down after my research (I’m going to admit that one of the reasons to choose Franklin was the novelty of its name and logo over other domestic MFs in the same category). It wasn’t years later that I realized how wrong my research was, as the fund only gave moderate returns when compared to other similar MFs, and also the debacle in 2020 when Franklin came into the public limelight for the wrong reasons, creating a scare among its investors. But still, I stuck with it and withdrew my money only recently. This was the first lesson I learned: novelty never leads to better returns. Had I chosen the fund objectively with professional help, I would have made 2-5% of the extra returns, which is very significant in long term investing.

In between, I also started different SIPs with different Mutual Fund houses. For the first couple of years, I had an auto-debit to SIPs right after my salary had been credited, i.e. at the end of the month. Which meant, all the NAVs were locked around at the end of each month, and I later realized that it was creating a fundamental problem of what if the market has been down for the majority of month but risen enough towards the end, just enough to make my SIP a tad bit expensive. That is exactly when I started allocating my SIPs to different days in a calendar month so that I get a better average of the market than allocating all my SIP towards the end of the month.

Let me illustrate what I am trying to suggest here. Say Michael Jackson wishes to invest Rs. 30,000 every month via SIPs. Now, a wise man would say that the best/optimum way to trap the NAV is to allocate Rs. 1,000 each day of the month. This way, Michael will get the best average of the market, but on the other hand, this could be overwhelming as well. Too many complex divisions into different MFs, too many SMSs and emails, continuous updating of portfolios, et al. Rather, Michael can simply divide this Rs. 30k into 2–6 tranches and still get a better average of NAV while capturing the highs and lows of the market during the month. My take is that in the case of 30k, either it should be divided into 3 tranches (10th, 20th and 30th of each month) or into 6 tranches (5th, 10th, 15th, 20th, 25th and 30th of each month). While making sure we are overdiversifying.

On top of that, each of the above tranches can be allocated to different mutual Funds (Small Cap, Mid Cap, Index, ELSS, Debt, Infra, BlueChip, etc.) to diversify. However, there is no one fixed solution which works for everyone, it is advised to seek professional help to build a structure which works according the investor’s risk appetite.

After the investor has locked down how they wish to structure their monthly SIP allocation, it is always recommended to reconfigure them every 6–12 months or while changing the SIP amounts.

If you need any help or are in a dilemma, just drop us a Direct Message on any of our social media accounts or comment down below, and we will get in touch with you to assist in defining your SIP structure via our free consulting sessions.

Disclaimer: Please note that all the above views are personal and compiled through research and personal experiences. Though it may make sense and suit a few, to others it may not. Happy Investing.