Last Updated on December 29, 2021 at 5:13 pm
What return can I expect from a SIP in an equity mutual fund is a question that new investors commonly ask. It would take them some time and some capital loss to understand that one should not expect returns from mutual fund SIPs, but must do this instead! An analysis of NIfty TRI (dividends included) from July 1999 shows that 10 and 15-year SIPs have continuously decreased. A look at how investors should redefine their expectations and plans.
Kindly note that this analysis is not about active vs passive investing. If a SIP in NIfty has returned lesser and lesser over time, the fate of active mutual funds (with a long enough history) would be no different. See for example Franklin India Bluechip Fund has not beaten the Nifty for the last 11 years! Also: Rolling SIP Return Analysis: Franklin India Blue Chip Fund.
Before we begin, as announced on Youtube, a video lecture series on Goal-Based Portfolio Management: Techniques to reduce fear, uncertainty, & doubt will be launched soon. This will discuss strategies to use and manage the right asset allocation no matter what the market condition is. You can register via this Googe Forms link for a notification upon launch. Note: the course is not about mutual funds or stocks. It is about goal-based investing and asset allocation for DIY investors ready to take it to the next level.
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.
👉 New Tool Alert! NaviPlan: A Privacy-Focused Multi-asset Tracker and Goal Planner 👈
The results presented here are derived from this tool: Mutual Fund SIP Rolling Returns Calculator. The mutual fund industry has successfully created the illusion a mutual fund SIP will reduce risk, it will always remain profitable over the long term, and it will promote discipline.
We have previously shown none of these is true!
- Mutual Fund SIPs Do Not Reduce Risk! Beware of Misinformation
- How the fate of your mutual fund SIPs is decided by timing luck
- Huge difference in SIP returns from the same fund! How is it possible?
- Don’t get fooled: Mutual funds have no compounding benefit!
- How investors get fooled into buying mutual funds with wrong expectations
- Don’t Be Fooled: SIP is NOT systematic investing!
Since it is hard to compute returns from SIPs of the same duration but started on different dates, it was difficult for the retail investor to check the claims of the industry (or at least their salesmen) that a long term SIP cannot fail.
The only reason Indian markets give positive returns in a long-term SIP backtest is because of short historical data. Nifty TRI is available only from 30th June 1999. Sensex TRI daily data is available only for the last ten years trailing the US S&P website. The history for our midcap and smallcap indices is even shorter!
This makes it hard for analysts or DIYs to showcase the true risks associated with SIPs. Hence the need to resort to S& P 500: Dollar Cost Averaging aka SIP analysis of S&P 500 and BSE Sensex.
Let us now consider 5, 10 and 15-year rolling SIP returns data of the NIfty 50 TRI from 1st July 1999 to 1st Jan 2020. This is a span of merely 247 months. This is an example of a rolling five-year SIP study:
Start Date: 01-07-1999 End Date: 01-07-2004 XIRR: 11.01%
Start Date: 02-08-1999 End Date: 02-08-2004 XIRR: 13.48%
Start Date: 01-09-1999 End Date: 01-09-2004 XIRR: 13.30%
XIRR here is the internal rate of return or the annualized return. This is a simple introduction for new investors: What is XIRR: A simple introduction. Notice the start date is rolled over by one month to compute the new return. Just a one month difference in start date results in a 2% difference in XIRR! There are 187 five-year Nifty SIP returns.
Five-year Rolling Nifty SIP Returns
Over five years returns are pretty much anyone’s guess.
Ten-year Rolling Nifty SIP Returns
Notice the drop in returns from 20%-plus to 10%-plus. That is a fall of about 50% from 2009 to 2020.
Fifteen-Year Rolling Nifty SIP Returns
The fall here is about 25% but steadier!
What do these results mean?
The constantly changing market dynamics is clearly evident here. We earlier saw this while analysing the Nifty PE using the market valuation tool. Notice how the long term PE average (central line) has moved up forcing us to redefine a high and low PE.
The NIfty has and is continuously changing character. The argument of a short history is applicable to the fall in returns as well. That is, one could argue that returns from Nifty could increase in future. However, a prudent investor would err on the side of caution and assume a trend reversal is not possible.
What should Investors do?
As the officially reported inflation decreases, interest rates follow, a decrease in stock market returns is natural and healthy. A lower expectation from equity is, in general, safer for investors, as they do not have to take too much risk or actively churn the portfolio due to underperformance.
However, the problem is not with the returns, the problem is with the asset allocation. Investors need to have at least 60% in equity for long term (ten-plus) year goals – at least initially.
Sadly this is not the case for many mutual fund and stock investors. Lower future returns and lower weights is a guarantee to a lower corpus. Investors should rework their asset allocation and goal calculations with not more than 10% returns from their overall equity portfolio (before tax – this will take away close to 1%).
We are on Google News
Use this button to add freefincal.com as a preferred personal finance source on Google News.
Explore 1,400+ videos on YouTube!
Subscribe to get posts via email!
Join 32,000+ readers and get free money management solutions delivered to your inbox! (Link takes you to our email sign-up form)Join our WhatsApp Channel
Explore our products
🔥Join our community of 9000+ users! 🔥- Use our Robo-advisory Tool to create a complete financial plan! More than 3,500 investors and advisors use this! Use the discount code robo25 for 20% off. Plan your retirement (early, normal, before, and after), plus non-recurring financial goals (such as child education) and recurring financial goals (such as holidays and appliance purchases). The tool helps anyone aged 18 to 80 plan for retirement, plus six non-recurring and four recurring financial goals, with a detailed cash flow summary.
- Our Flagship Course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market conditions! Watch the first lecture for free! One-time payment! No recurring fees! Lifelong access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
- Join the freefincal investor circle! An exclusive space for investors, advisors, fintech employees and students to access financial planning and insurance tools, mutual fund and stock analysis tools, coding strategies and Excel macros for data extraction. 750+ members are now part of our investor circle.
- Increase your income by getting people to pay for your skills! More than 900 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner seeking more clients through online visibility, or a salaried individual looking for side or passive income, we will show you how to do it by showcasing your skills and building a community that trusts and pays you. (Watch the 1st lecture for free). One-time payment! No recurring fees! Lifelong access to videos!
- Portfolio Tracker! Track your mutual funds and stock investments with our Google Sheet!
- We also publish monthly screeners for
Our Podcast: Let's Get Rich With Pattu
On Spotify: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! On Audible: Listen to the Let's Get Rich with Pattu Podcast
Listen to the Let's Get Rich With Pattu podcast on YouTube.
Now watch Let's Get Rich With Pattu தமிழில் (in Tamil)!About The Author
Dr M Pattabiraman giving a lecture
- Dr M. Pattabiraman (PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras.
- He has over 14 years of experience publishing news analysis, research and financial product development. He has over 28 years of teaching and research experience. He is also a public speaker and keynote presenter.
- He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice.
- Connect with him via @pattufreefincal on X LinkedIn YouTube
- Pattabiraman has co-authored three print books.
This book helps you ask the right questions and find the right answers. It also includes nine online calculators to create custom solutions.
(2) Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want. 
Both the boy and girl versions of "Chinchu Gets a Superpower".
Most investor problems stem from a lack of poor decision-making. We made bad decisions and money mistakes when we started earning, and we spent years undoing them. Why should our children go through the same pain? What is this book about? As parents, what if we had to groom one ability in our children that matters not only for money management and investing but for every aspect of life? My answer: Sound decision-making. So, in this book, we meet Chinchu, who is about to turn 10. The story follows what he wants for his birthday and how his parents plan it, while also teaching him key ideas about decision-making and money management. What readers say! 
Feedback from a young reader after reading Chinchu Gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from a young age. The importance of money management and decision-making based on their wants and needs. Very nicely written in simple terms. - Arun.
About freefincal & its content policy
Freefincal is a News Media organisation dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact Information: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)Our publications
- Your Ultimate Guide to Travel. This is an in-depth exploration of vacation planning, including how to find affordable flights, budget accommodations, and practical travel tips. It also examines the benefits of travelling slowly, both financially and psychologically, with links to relevant web pages and guidance at every step. Get the PDF for Rs 300 (instant download)
- How to profit from content writing: Our ebook is for those interested in getting a side income via content writing. It is available at a 50% discount for Rs. 500 only!