When should you start an SIP?

Timing the stock market is a near-impossible task—even for seasoned professionals. For individual investors, it’s even harder. This is precisely why Systematic Investment Plans (SIPs) have gained popularity as an investment strategy for long-term wealth creation. SIPs allow investors to commit a fixed amount at regular intervals, typically monthly, into mutual funds—thereby removing the pressure of choosing the ‘perfect time’ to invest.

But many still wonder: Does it matter when you start your SIP? Does the date or market level impact long-term returns? Let’s explore.

Luck vs discipline

Let’s consider two hypothetical investors. One has the best possible luck and manages to invest at the lowest point of the market each month. The other, unfortunately, always ends up investing at the monthly peak.

In the short term, the difference is stark. Over the past year, for instance, the ‘lucky’ investor would have earned 1.17 per cent, while the ‘unlucky’ one would have seen a return of -9.87 per cent. However, as we extend the investment horizon, the impact of timing diminishes sharply. Over five years, the return gap between the two falls to just over 3 per cent. At ten years, it narrows further to 1.13 per cent. And over 25 years, the difference is just 0.59 per cent.

In short, luck may play a role in the short term, but over time, discipline and consistency far outweigh timing.

Does the SIP date matter?

Another frequently asked question is whether the specific date of SIP instalment—beginning, middle, or end of the month—affects performance. The short answer: not much.

While one-year SIPs starting mid-month recently delivered marginally lower returns than those started at the beginning or end of the month, this variation fades with time. Over a 10 to 15-year period, the return differences across SIP dates converge. After 25 years, the outcomes are virtually identical.

The key lesson here is simple: don’t over-engineer your SIP date. Pick a day that suits your cash flow and stay consistent.

What about market valuations?

It’s often said that investing when markets are cheap leads to better outcomes. This holds true for lump sum investments. But do SIPs benefit from timing the market based on valuation?

To answer this, consider three different five-year periods. In each, investors who started SIPs at the peak of market valuation (as measured by the Nifty 500 Index P/E ratio) were compared to those who started at the valuation low.

Surprisingly, the results were remarkably similar. For example, during one cycle, SIPs started at a P/E peak of 37.26 delivered 15.47 per cent returns, while those started at a trough of 11.58 delivered 15.55 per cent. Across all examined periods, the difference in returns was marginal. SIPs, by their nature, average out entry-point risk over time.

Should you pause SIPs during a crisis?

Market downturns are uncomfortable, often prompting investors to stop or pause their SIPs. However, history suggests that staying the course is a far better strategy.

During the Global Financial Crisis, for instance, the market took over six years to recover. Yet, SIPs initiated just before the downturn still delivered annualised returns of 9.79 per cent—far better than lump sum investments made at the same time, which barely broke even.

This resilience stems from rupee cost averaging. SIPs continue to accumulate more units when prices fall, leading to higher gains when the market recovers.

Final thoughts

SIPs are designed to take the emotion out of investing. They bring structure, discipline, and a long-term focus—qualities that are essential, especially for new investors. Whether the market is high or low, whether you invest on the 1st or the 30th of the month, the most important factor is consistency.

Rather than attempting to time the market, a more effective approach is to spend time in the market. Over the long run, it is this steady participation—month after month—that creates lasting wealth.

(The author is Head - Passive Business, Motilal Oswal AMC)