Last Updated on August 22, 2022 at 11:28 pm
“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 Tenure | NIFTY 50 – TRI | NIFTY 500 – TRI |
| 1Y | 18.5 | 17.9 |
| 2Y | 7.9 | 7.1 |
| 3Y | 6.3 | 4.4 |
| 4Y | 7.5 | 5.5 |
| 5Y | 8.6 | 7.1 |
| 6Y | 8.3 | 7.2 |
| 7Y | 8.8 | 8.3 |
| 8Y | 9.5 | 9.3 |
| 9Y | 10.0 | 10.0 |
| 10Y | 9.9 | 9.9 |
| 11Y | 9.7 | 9.7 |
| 12Y | 10.4 | 10.5 |
| 13Y | 10.0 | 10.1 |
| 14Y | 9.9 | 9.9 |
| 15Y | 10.1 | 10.1 |
| 16Y | 10.8 | 10.6 |
| 17Y | 11.5 | 11.4 |
| 18Y | 12.6 | 12.7 |
| 19Y | 13.2 | 13.6 |
| 20Y | 13.4 | 14.0 |
| 21Y | 13.2 | 13.8 |
| 22Y | 13.2 | 13.9 |
| 23Y | 14.0 | |
| 24Y | 14.0 | |
| 25Y | 13.8 | |
| 26Y | 13.6 |
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.
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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.