What return can I expect from a Nifty 50 SIP over the next 10 years?

Published: October 16, 2020 at 2:24 pm

Last Updated on October 17, 2020

“What return can I expect from a Nifty 50 SIP over the next 10 years?” This is a typical newbie question. We have pointed out that no one can or no one should expect returns from mutual funds. Yet we still see statements on social media that 10-12% return is “easily possible”. On what basis are these statements made? Certainly without any support from data as we shall see in this article.

Mutual funds can never get sold (regular plan or direct plan) if investors realised the truth about them: there are no guarantees and if you simply buy and hold without a plan, it becomes pot luck. In a poll conducted in Nov, 2019 netizens voted, 1st-time investors will never buy MFs if they knew about risks.

This table shows returns from Nifty 50 SIP and Nifty 500 SIP (total returns) over the last 1,3,4,….22 years.

SIP TenureNIFTY 50 – TRINIFTY 500 – TRI
1Y18.517.9
2Y7.97.1
3Y6.34.4
4Y7.55.5
5Y8.67.1
6Y8.37.2
7Y8.88.3
8Y9.59.3
9Y10.010.0
10Y9.99.9
11Y9.79.7
12Y10.410.5
13Y10.010.1
14Y9.99.9
15Y10.110.1
16Y10.810.6
17Y11.511.4
18Y12.612.7
19Y13.213.6
20Y13.414.0
21Y13.213.8
22Y13.213.9
23Y14.0
24Y14.0
25Y13.8
26Y13.6

Would you confidently expect the lowest double-digit return before tax over the next 10 years from a Nifty 50 SIP? The simple truth is, no knows, no one can know.

But it becomes 12-13% over the long-term na? Unless you are mutual fund peddler, do you seriously Indian equity is going to be as rewarding in the future as it was in the past? So what is the solution?

Active mutual funds? Sadly no. We shall see in the sequel to this article, active mutual funds (large cap, mid cap, small cap, multi-cap, large and mid-cap) started underperforming the Nifty 50 at least seven years ago and not from Feb 2018 (when the market inhomogeneity become apparent).

Exit equity mutual funds? Yes, that is a solution, provided you shift to direct equity. However, the challenges here in selection and management are significant.

NIfty Next 50? Sadly that comes with its own baggage! See: Can I avoid Nifty and invest 50% in Nifty Next 50 index and 50% debt?

The only realistic solution is to (1) expect lower returns; (2) reduce dependence on equity significantly; (3) not expect returns to compensate our low income; (4) focus on increasing our skills and income so that can invest more.

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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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