SIP Rolling Returns Analysis with Sensex Data

Published: September 18, 2013 at 2:15 pm

No matter how often we mention/promote/advertise that equity investments if continued over a long enough period would generate handsome returns, many investors seem to require constant reassurance and encouragement to continue their equity investments.

A person who wishes to remain anonymous made the following SIP rolling returns analysis with Sensex data to provide his friends this reassurance and encouragement.  He readily and most generously agreed to share his analysis but chose to remain anonymous 🙁

The analysis

Assuming a SIP investment in an index mutual fund that tracks the Sensex, rolling return averages have been approximately calculated for 1, 2, 3, 5, 10, 15, 20, 25 and 30 year periods.

For data ranging from April 1979 to Aug. 2013 there would be as many as 53 periods of 30 year duration separated by a month!  For example, April 1979 to 2009 is the 1st period, May 1979 to May 2009 the 2nd period and so on.

Part of the results are tabulated below

Results of SIP Rolling returns analysis with Sensex data

Notice how the average* SIP return varies only by about 2%.  This however, has no meaning unless we look at the standard deviation.  (* average here is the arithmetic average of all rolling return data)

Standard deviation, as mentioned before is a measure of how much the actual results can vary from the average, assuming that the data points follows a normal distribution (a very good introduction to normal distributions may be found here).

A more endearing definition:

The average 1 year rolling return is 16%. The standard deviation is 34%. This means 68 times out of 100, the return you get will be anywhere between 16% -34% to 16%+34%.

This just means over a one-year period, the return could just about be anything!

Contrast this with the data for a 20-year rolling return.  Over this duration, 68 times out of 100 the return you get will be anywhere between 13.6%-2.3% to 13.6%+2.3%

That is the range of fluctuations in the returns has come down significantly when the investment tenure is longer. In the table, you can see that the standard deviation drops to 1-2% for a tenure of 20 years or more.

The increase in probability of getting more than 10% return with increase in investment tenure is a consequence of the decrease in standard deviation.

Bottomline: If we start a SIP in a diversified equity mutual fund for a long-term goal a good 15-20 years away and never stop it, the chances of us getting a double-digit return is reasonably high.  The simplest example of such a fund is an index fund as assumed in this analysis.

Take-home message:

Equity investments are capable of producing high returns only because they are volatile.  The only way to take advantage of fluctuating returns is to stay invested.

That way the fluctuations become much smaller than the average return (more on this later).

That is the geometric average of fluctuating returns when considered for a long enough period is high with a small standard deviation.  To put it plainly the net return is high!

Download the SIP Rolling Returns analysis with Sensex data

(It also includes a lump sum analysis)

If you wish to learn more about volatility you could try out these calculators:

Portfolio Rebalancing –Volatility Simulator

Debt Fund vs. FD –Volatility Simulator


As mentioned before, this analysis was made by a person who wishes to remain anonymous.  Please join me in thanking him for his generosity.

Do share your thoughts on this analysis.

Do share if you found this useful
Share your thoughts on this topic at the  Reddit freefincal_user_forum

Reach your financial goals like a pro! Join our 1600+ Facebook Group on Portfolio Management! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
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. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps