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The genesis of this article is a rather startling piece of advice I read on a personal finance website — to ensure the highest returns, longterm SIPs ( systematic investment plans) in equity should always be between fifth and tenth of a month.   The author's advice was based on an analysis of annualised returns of 10- year SIPs (120 instalments) between March 2003 and March 2013, assuming the SIP date as 1, 5, 10, 15, 20 and 25 of every month. The startling part was the returns varied wildly — as much as 1.4 per cent a year between the lowest and highest returns of an SIP made during the same period, but on different dates. Its analysis of investments in a top- performing equity fund showed if you started investing on March 5, 2003, invested ₹ 10,000 regularly for 120 months and sold your investment on March 5, 2013, your investment would be worth ₹ 34.06 lakh ( 19.8 per cent a year). If your investment began on March 25, 2003 and you sold it on March 25, 2013, your investment would be worth only ₹ 31.63 lakh (18.4 per cent a year). Even after analysing returns from a couple of other top- performing funds, the highest returns were invariably for a date between 5and 10 of a month. Since the entire idea of an SIP in equity is to do away with the importance of timing, this conclusion would strike at the very root of the SIP route. Clearly, this was a wrong conclusion, based on an incorrect analysis of what was otherwise absolutely correct data. So, what was wrong? In March 2013, net asset values (NAVs) of the fund swung widely, in line with the stock markets. The number of units accumulated in each scheme did not really differ significantly, irrespective of the date on which the SIP was made. What was making a major difference in the final return was the NAV as on the date of sale — this differed widely and was usually higher during the first half of the month. In fact, if you consider the example cited earlier and assumed in all cases, the sale happened on a fixed date (say March 30, 2013), irrespective of the date of the SIP, the difference in returns between various SIPs drops to insignificant levels. Averaging the returns through more complex calculations re- confirms this — it doesn't matter what your SIP date is, as long as you are consistent in investing every month. The number of units accumulated at the end of your investment cycle wouldn't vary significantly, irrespective of the date on which you invest. Clearly, the conclusion that your SIP date should be between 5 and 10 of a month was incorrect. But what the analysis correctly showed was your return could ( in most cases it does) vary widely, based on your SIP date, if you blindly choose the same date as your big- bang single exit date. The correct conclusion is obvious — just as you eliminate the impact of timing by investing in an SIP mode, you must also exit systematically. Ideally, you should exit in the same extended fashion in which you invest, though this is unlikely for most people. You could seek to minimise the impact of the exit's timing by systematically transferring from riskier asset classes such as equity and gold to a relatively low- risk asset class such as debt. What most people, therefore, need to do is provide for a tapering- off period at the end of the investment cycle. At this time, you could begin a systematic transfer plan (STP) in a debt product. Despite the recent upheavals in debt funds, a systematic transfer into a short- term fund remains a good option for the tapering- off period, as long as there is no fixed inviolate date for the goal. Short-term debt funds tend to recover the losses relatively quickly, despite unprecedented events such as the RBI's steps in July 2013. But if your risk profile is really low or there is a magic date for your goal, you could consider systematically transferring into a good bank's recurring deposit scheme during the tapering- off period. Most people like the no- hassles SIP investment concept. You should also have an STP plan towards the end of your investment period to ensure the discipline you showed while investing isn't lost due to the vagaries of the market at atime when you need the money.

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