Many new investors panic not because their SIP is underperforming, but because they’re looking at the wrong number. Highlighting this, Gaurav Mundhra, personal finance expert and co-founder at S&P Financial Services, explained why most people calculate SIP performance incorrectly, often comparing it unfairly with fixed deposits.
A COMMON WORRY AMONG SIP INVESTORS
In his LinkedIn post, Mundhra shared a conversation with a client who wanted to stop his SIP. The client told him, “I’m thinking of stopping my SIP. I invested Rs 1,20,000 and made only Rs 10,000 just 8%. Even an FD gives more.”
At first glance, the complaint seemed reasonable. But Mundhra wrote, “the headline number hides the real story.” And that is where most investors go wrong.
THE CRUCIAL QUESTION THAT CHANGES THE MATHS
Mundhra asked his client, “Did you invest Rs 1,20,000 in one shot?”
The client replied, “No it was a Rs 10k SIP every month.”
That small detail changed the entire picture.
As Mundhra explained in his post, “Your first Rs 10,000 stays invested for 12 months. Your second stays for 11 months. Your third stays for 10 and your last Rs 10,000 was invested barely 10 days ago.”
So even though the investor felt he had invested “for a year”, the full amount was not in the market for a full 12 months. On average, the money stayed invested for only about six months.
THE REAL RETURN IS MUCH HIGHER THAN IT SEEMS
Once the actual investment duration is considered, the return looks very different. Mundhra wrote, “Now take that 8% return earned in roughly half a year annualise it and suddenly, the number becomes ~16% per year. Sixteen percent. Double an FD. During a volatile year in the markets.”
This completely changed the client’s view, and he admitted that he had never looked at his SIP returns in that way before.
WHY SIP RETURNS LOOK LOW AT FIRST
Many investors make the same mistake because they start counting returns from the first day of their SIP. But each instalment compounds for a different number of months, which is why the overall return in the first year often appears lower.
Mundhra explained this in simple terms: “We focus on the starting date of the SIP instead of how long our actual money has been compounding. SIP returns aren’t linear. They aren’t instant.”
PATIENCE IS THE REAL HERO
SIP investing works best when people stay consistent and give their money time to compound. Judging a SIP too early can lead to unnecessary panic and incorrect decisions.
As Mundhra reminded investors, “Compounding rewards patience, not panic.”
His post is a reminder for anyone who feels disappointed with early SIP returns. The real picture often looks much better once the timing and maths are understood.
– Ends