I am trying to build an automated monthly XIRR tracker for mutual fund SIPs with respect to a benchmark. This will help us understand how returns from a SIP can fluctuate and how consistently the fund has performed with respect to its benchmark. The automation is not yet complete but since I found a good a good SIP account statement generator since inception (link given below), here are some results for HDFC Top 200.
Monthly XIRR tracking since inception (Sep. 1996)
Since XIRR is not reliable for investments less than a year old, XIRR data for the first 12 SIP installments is not included.
The graph suggests that although the XIRR tracks the general market movement, the fluctuations die down after 5+ years.
Correlation with NAV movement: Positive. About 34%
The fall during the 2008 crash is about 15% or so.
Let us look at the monthly XIRR had the SIP been started at each of the three arrows above.
Monthly XIRR tracking since Jan. 2004
For a SIP started after the last bull run had begun, the fall during the 2008 crash is much higher ~ more than 20%. Here again the fluctuations die down after a few years.
Correlation with NAV movement: negative! Not sure how to interpret that.
Monthly XIRR tracking since Nov. 2007
This is for a SIP begun right before the 2008 crash. Recall that XIRR data for the first 12 SIP installments is not included.
Correlation with NAV movement: Positive. 15%
Monthly XIRR tracking since Oct. 2010
This is for a SIP started after the market bounced back after the 2008 crash.
Correlation with NAV movement: Obviously positive and large. 91%
Impression: Do the above graphs suggest that although the XIRR of a SIP investment broadly follows market movements, its volatility decreases with age? For all our sakes, let us hope so.
Here is a similar study for Franklin Blue Chip: Tracking a mutual fund SIP: Month by month XIRR
The automated tracker can only analyze investments from 3rd April 2006. I will add a comparison with a lump sum investment.
The SIP account statements for this post were generated using this SIP calculator
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