SIP Returns Below 8% After Five Years? Historical Data May Give Investors A Reason To Stay Invested
Equity investors have had a difficult stretch in recent months, with benchmark returns losing some of their earlier momentum. For SIP investors, particularly those who began investing expecting strong double-digit gains, seeing single-digit returns after several years can be frustrating. But a five-year return figure does not necessarily tell the whole story. Historical market data shows that periods of subdued early performance have sometimes been followed by stronger longer-term SIP returns.
Such numbers can make investors question whether their equity mutual fund SIP is still working as intended. The concern becomes more pronounced when an investor has been contributing every month for five years or more but sees returns that remain below expectations.
Historical analysis of monthly SIP returns for the BSE Sensex TRI between August 1996 and June 2026 offers an interesting perspective. The periods were examined according to the returns generated by SIPs during their first five years.
The results suggest that investors who experienced a weak beginning were not necessarily destined to have weak returns over a longer period.
By comparison, periods in which the initial five-year SIP return was above 8% recorded an average 10-year SIP return of 14.7%.
The numbers may appear surprising because one might reasonably expect a stronger first five years to lead to a stronger decade. But equity markets move through different cycles, and the conditions that produce weak returns in the early years can be very different from those prevailing later.
This does not mean investors should assume that an SIP delivering less than 8% after five years will eventually produce an 18.3% return. The historical figures describe what happened during particular periods in the past, not what will happen in the future.
According to financial planning principles, the data is better viewed as a reminder of the risks of judging a long-term equity investment on one isolated performance period.
When markets decline, the same monthly contribution can buy more units. If prices remain depressed for an extended period, regular investors can continue accumulating units at lower valuations.
A subsequent market recovery can then benefit those additional units. This is the basic effect of rupee-cost averaging, although it does not eliminate market risk or guarantee profits.
For a lump-sum investor, a market fall can immediately reduce the value of the entire investment. An SIP investor who is still making regular contributions has a different experience because new money continues to enter the market during the decline.
That distinction is important when assessing an equity SIP during a weak market phase. A lower portfolio value or modest return in the short term does not necessarily mean every monthly contribution has worked against the investor.
Over the past three decades, there have been several periods when five-year SIP returns were 8% or lower. These phases can occur around sharp market corrections, prolonged downturns or periods when equity valuations and earnings growth fail to support strong gains.
An investor who sees disappointing returns at the end of such a phase may be tempted to stop contributions or redeem the investment. But doing so could mean exiting before a subsequent market recovery.
This does not mean investors should hold every fund indefinitely. A weak return can be a reason to investigate, particularly if the fund is performing poorly compared with relevant benchmarks or comparable schemes.
A useful starting point is to compare the fund with its benchmark and category peers over appropriate periods. If a scheme has consistently lagged behind comparable investments, the problem may be specific to the fund rather than the broader market.
Changes within the fund also deserve attention. A new fund manager, a significant shift in investment strategy or a change in the portfolio's risk profile could alter the original investment proposition.
The investor's own circumstances matter as well. A fund that remains appropriate for someone with a 15-year investment horizon may not be suitable for another person who needs the money within two or three years.
Risk appetite should also be reassessed periodically. Equity investments can experience substantial volatility, and investors should be comfortable with the possibility of temporary losses while pursuing longer-term growth.
An investor can stop fresh SIP instalments while continuing to hold the accumulated units. Whether that makes sense depends on the financial goal, available cash flow and assessment of the investment.
Redeeming the existing units is a separate decision because it takes the money out of the market and may also create a tax liability if there are taxable gains.
That distinction can be useful for investors who are unhappy with a fund but are not yet certain that they want to exit completely. A review of the investment may reveal that the problem lies with the particular scheme rather than with continuing equity exposure altogether.
Under the tax treatment stated in the illustration, equity-oriented mutual fund gains on units held for 12 months or less are subject to short-term capital gains tax at 20%. For units held for more than 12 months, long-term capital gains exceeding Rs 1.25 lakh in a financial year are taxed at 12.5%, without indexation.
Applicable surcharge and cess can also affect the final tax liability.
Because SIPs involve multiple instalments made on different dates, each instalment can have its own holding period. Investors considering redemption should therefore look at the tax implications alongside the investment decision rather than focusing only on the current portfolio return.
The more relevant question is whether the investment continues to serve its intended purpose. Investors should review the fund's performance against its benchmark and peers, assess any changes in management or strategy, and consider whether the fund still matches their financial goal and risk tolerance.
For investors with a long horizon, a period of subdued equity returns may be uncomfortable but not necessarily a reason for immediate action. According to financial planning experts, disciplined reviews are generally more useful than making decisions based solely on short-term market sentiment.
Ultimately, an SIP should be judged in the context of the investor's goal, time horizon and the quality of the underlying fund. A disappointing five-year number deserves scrutiny, but it does not, by itself, provide enough information to determine whether an investment should be abandoned.
Image Courtesy: Meta AI
A weak five-year return does not tell the whole story
The Nifty 50 Total Return Index (TRI) had declined 4.25% over six months and 2.78% over nine months as of August 7, 2026. Over a three-year period, the index's annualised return stood at about 9.1%.Such numbers can make investors question whether their equity mutual fund SIP is still working as intended. The concern becomes more pronounced when an investor has been contributing every month for five years or more but sees returns that remain below expectations.
Historical analysis of monthly SIP returns for the BSE Sensex TRI between August 1996 and June 2026 offers an interesting perspective. The periods were examined according to the returns generated by SIPs during their first five years.
The results suggest that investors who experienced a weak beginning were not necessarily destined to have weak returns over a longer period.
What happened after SIP returns fell below 8%?
In the historical analysis, periods when the first five years of SIP returns were 8% or lower went on to record an average 10-year SIP return of 18.3%.By comparison, periods in which the initial five-year SIP return was above 8% recorded an average 10-year SIP return of 14.7%.
The numbers may appear surprising because one might reasonably expect a stronger first five years to lead to a stronger decade. But equity markets move through different cycles, and the conditions that produce weak returns in the early years can be very different from those prevailing later.
This does not mean investors should assume that an SIP delivering less than 8% after five years will eventually produce an 18.3% return. The historical figures describe what happened during particular periods in the past, not what will happen in the future.
According to financial planning principles, the data is better viewed as a reminder of the risks of judging a long-term equity investment on one isolated performance period.
Why falling markets can work differently for SIP investors
One of the defining features of a Systematic Investment Plan is that the investor contributes a fixed amount at regular intervals. This means the number of mutual fund units purchased can change depending on the prevailing market price.When markets decline, the same monthly contribution can buy more units. If prices remain depressed for an extended period, regular investors can continue accumulating units at lower valuations.
A subsequent market recovery can then benefit those additional units. This is the basic effect of rupee-cost averaging, although it does not eliminate market risk or guarantee profits.
For a lump-sum investor, a market fall can immediately reduce the value of the entire investment. An SIP investor who is still making regular contributions has a different experience because new money continues to enter the market during the decline.
That distinction is important when assessing an equity SIP during a weak market phase. A lower portfolio value or modest return in the short term does not necessarily mean every monthly contribution has worked against the investor.
Is five years long enough to assess an equity SIP?
Five years is certainly not a short period in everyday financial planning. Yet equity markets do not follow a fixed timetable in which every five-year period produces a particular level of return.Over the past three decades, there have been several periods when five-year SIP returns were 8% or lower. These phases can occur around sharp market corrections, prolonged downturns or periods when equity valuations and earnings growth fail to support strong gains.
An investor who sees disappointing returns at the end of such a phase may be tempted to stop contributions or redeem the investment. But doing so could mean exiting before a subsequent market recovery.
This does not mean investors should hold every fund indefinitely. A weak return can be a reason to investigate, particularly if the fund is performing poorly compared with relevant benchmarks or comparable schemes.
Check the fund, not just the return
Before deciding whether to stop an SIP, investors should examine why the performance has been weak.A useful starting point is to compare the fund with its benchmark and category peers over appropriate periods. If a scheme has consistently lagged behind comparable investments, the problem may be specific to the fund rather than the broader market.
Changes within the fund also deserve attention. A new fund manager, a significant shift in investment strategy or a change in the portfolio's risk profile could alter the original investment proposition.
The investor's own circumstances matter as well. A fund that remains appropriate for someone with a 15-year investment horizon may not be suitable for another person who needs the money within two or three years.
Risk appetite should also be reassessed periodically. Equity investments can experience substantial volatility, and investors should be comfortable with the possibility of temporary losses while pursuing longer-term growth.
Stopping an SIP and redeeming are two different decisions
Investors sometimes treat discontinuing a monthly SIP and selling their existing mutual fund units as the same thing. They are not.An investor can stop fresh SIP instalments while continuing to hold the accumulated units. Whether that makes sense depends on the financial goal, available cash flow and assessment of the investment.
Redeeming the existing units is a separate decision because it takes the money out of the market and may also create a tax liability if there are taxable gains.
That distinction can be useful for investors who are unhappy with a fund but are not yet certain that they want to exit completely. A review of the investment may reveal that the problem lies with the particular scheme rather than with continuing equity exposure altogether.
Tax can add another factor to an exit decision
Investors should also consider the tax consequences before redeeming equity mutual fund units.You may also like
- From trainee to Tata chairman: The remarkable rise of Ratan Tata's pick N Chandrasekaran
- Beyond Hindenburg and the DoJ case, Gautam Adani puts trust at the heart of nation-building
- Indian chip startups raise $206 mn since 2022 as funding concentrates on later‑stage firms
- When will govt launch plastic currency notes?
- India's deal activity rises to $11.6 billion in July
Under the tax treatment stated in the illustration, equity-oriented mutual fund gains on units held for 12 months or less are subject to short-term capital gains tax at 20%. For units held for more than 12 months, long-term capital gains exceeding Rs 1.25 lakh in a financial year are taxed at 12.5%, without indexation.
Applicable surcharge and cess can also affect the final tax liability.
Because SIPs involve multiple instalments made on different dates, each instalment can have its own holding period. Investors considering redemption should therefore look at the tax implications alongside the investment decision rather than focusing only on the current portfolio return.
What should SIP investors do now?
There is no single rule that says an equity SIP should be stopped simply because its five-year return is below 8%. Historical evidence suggests that early periods of weak performance have sometimes been followed by much stronger long-term outcomes, but those historical patterns should never be treated as a promise.The more relevant question is whether the investment continues to serve its intended purpose. Investors should review the fund's performance against its benchmark and peers, assess any changes in management or strategy, and consider whether the fund still matches their financial goal and risk tolerance.
For investors with a long horizon, a period of subdued equity returns may be uncomfortable but not necessarily a reason for immediate action. According to financial planning experts, disciplined reviews are generally more useful than making decisions based solely on short-term market sentiment.
Ultimately, an SIP should be judged in the context of the investor's goal, time horizon and the quality of the underlying fund. A disappointing five-year number deserves scrutiny, but it does not, by itself, provide enough information to determine whether an investment should be abandoned.
Image Courtesy: Meta AI
Loving Newspoint? Download the app now
