Every mutual fund factsheet shows a return. Almost nobody earns it. When people talk about SIP real returns, they usually mean returns after inflation. There is a gap that comes before that one, and it is the gap between what the fund earned and what you earned in the same fund.
In 2022 Axis Mutual Fund measured that gap across twenty years of Indian investors. The answer is uncomfortable, and it comes from inside the industry.
What the study found
Axis Mutual Fund's study, Analysis of Indian investor behaviour and its impact on performance, looked at 2003 to 2022. It compared three numbers: what the funds returned, what investors who came in through SIPs earned, and what investors who came in with lump sums earned.
| Fund type | Fund return | SIP investors | Lump-sum investors |
|---|---|---|---|
| Equity funds | 19.1% | 15.2% | 13.8% |
| Hybrid funds | 12.5% | 10.1% | 7.4% |
Read the equity row slowly. The funds compounded at 19.1% a year. The average SIP investor in those same funds earned 15.2%. The average lump-sum investor earned 13.8%. That is a gap of about 4 percentage points a year for SIP investors and 5.3 points a year for lump-sum investors.
Why the gap opens
The study's own title names the cause: behaviour. The fund's return assumes money that arrived on day one and never left. Real investors do not behave like that. Money tends to arrive after markets have already risen, when the news is good and the neighbours are boasting. It tends to leave after a fall, when the statement is red and fear is loud.
Each of those moves feels sensible in the moment. Together they mean you own more of the fund near the top and less of it near the bottom. The fund's number is a property of the fund. Your number is a property of you.
SIP real returns are better, but still short
There is good news in the table, and it is fair to say it plainly. SIP investors did better than lump-sum investors in both equity and hybrid funds. A fixed monthly amount takes some of the timing decisions out of your hands, and that helps.
It does not close the gap. Four percentage points a year is enormous over a working life. And an SIP only removes timing when it keeps running. Stopping it in a crash, or pausing it "until things settle", brings the timing problem straight back.
What this means for your plan
Most SIP illustrations you are shown use the fund's return, or an assumed 12%. Your plan should use something closer to what investors actually earn.
- Plan with a lower number. If your projection assumes 12%, run it again at 9% or 10%. If the plan only works at the brochure number, it is not a plan.
- Look at your own XIRR. Most investment platforms, and many account statements, show your personal annualised return. Compare it with the fund's return over the same period. The difference is your behaviour gap.
- Decide your rules before the fall. Write down now what you will do when the market drops 30%. Decisions made in advance are kept far more often than decisions made in panic.
- Then check the fee. Behaviour is the gap you control. The fee is the gap that is taken from you every year regardless. Use the SIP fee calculator to see what yours costs.
The question behind the number
I ran an SIP from 2007 for nearly four years, through the 2008 crash, topping up the way everyone advised. When I extended my real returns forward, they did not come close to the illustration I had been shown. That gap was the first thing that made me look harder.
Even a perfect investor with no behaviour gap at all still ends up holding a corpus that pays nothing until it is sold. That is the larger question, and it is the one Chapter 4 of The Last Salary is about.
The fund's return is a fact about the fund. Your return is a fact about your life.
Frequently asked questions
Why is my SIP return lower than the fund's return?
The fund's return assumes money invested once and left alone. Your return depends on when your money went in and came out. Buying after rallies and stopping or selling after falls lowers it.
What did the Axis Mutual Fund study find about SIP returns?
Over 2003 to 2022, equity funds returned 19.1% a year, SIP investors in them earned 15.2% and lump-sum investors earned 13.8%.
Are SIPs better than lump sum investing?
In the Axis study, SIP investors earned more than lump-sum investors in both equity and hybrid funds. SIPs reduce timing mistakes, but only while they keep running.
How do I check my real SIP return?
Look for your XIRR on your investment platform or account statement. It is your personal annualised return, after accounting for the timing of each instalment.
What return should I assume for SIP planning?
Use a cautious number below the fund's historical return, and test your plan at several rates. A plan that only works at the best case is fragile.
Disclaimer: This article is for education only and is not financial advice. Please consult a certified financial expert before making investment decisions.
