After biggest intraday fall: 10-year Nifty SIP Return is 2.3%, 14-year SIP Return is 5%

Here is how ten and fourteen-year SIPs in Nifty have fared during this market crash

Published: March 23, 2020 at 4:07 pm

Sensex closed on March 23rd 2020 at 25,981.24 a fall of -13.15% the biggest intraday fall in its history. The previous highest was -12.77% on 28th April 1992. Long-term SIP returns (before tax!) in the NIfty have crashed well below fixed income returns. This market crash continues to teach capital market participants new lessons with each passing day.

If you are worried (as you should be) about the ongoing crash there here is a FAQ: Should we exit from equity mutual funds now to prevent further loss? We reported earlier that the Sensex lost 30% twice as fast as 2008 crash! This is the graph updated as on 23rd March. We have now witnessed the fastest/quickest fall of 37%

Normalised plots of Sensex market crashes with no of business days in the x axis as on 23rd march 2020
Normalised plots of Sensex market crashes with no of business days in the x-axis as on 23rd march 2020

A SIP started ten years ago in the Nifty (excluding expenses and tax!) would appear as below.

10-year SIP in Nifty as on 23 March 2020
10-year SIP in Nifty as on 23 March 2020

XIRR of NIfty (incl dividends) as on 23rd March 2020 2.33%.
Remove expenses it would be about 2% or so (if we project using HDFC Nifty Index regular plan, the XIRR would be 1.69%, Direct plan should be at least 0.5% better)

Regular readers may recall we had simulated how a long-term SIP will fall after a market crash in March 2019: Mutual Fund SIPs Do Not Reduce Risk! Beware of Misinformation. Now investors have a practical example which significantly steeper!

A SIP started 14 years would have grown like this.

14-year SIP in Nifty as on 23 March 2020
14-year SIP in Nifty as on 23 March 2020

XIRR of NIfty (incl dividends) as on 23rd March 2020 4.91%.
Remove expenses it would be about 4% or so (if we project using HDFC Nifty Index regular plan, the XIRR would be 3.76%, Direct plan should be at least 0.5% better).

What should investors do now? Stop believing what sales guys tell you and blindly believe a SIP would average risk. The standard example I give is filling a bucket with mugs of water. The mug of water is your SIP monthly instalment. The bucket is your total investment. Soon the bucket would fill significantly.

Sadly the bucket is not stable. It moves about because of market forces and sometimes like the past few days it would shake so violently it would not matter much if your next mug of water hits the bucket at a lower level.

The best way to manage risk in your portfolio is by having a target corpus and reduce equity exposure continuously and progressively so that you can get close to your desired corpus regardless of market ups and downs.

People say we should not panic and not act emotionally at these times. Humans cannot get rid of emotions. Emotions can be used to tackle market fall provided we are emotional about the right things. To be continued.

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements write to pattu [at] freefincal [dot] com
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