Sign In Get Started

Why the 6.7% SIP return claim is mathematically wrong

Stocks● Neutral

Why the 6.7% SIP return claim is mathematically wrong

2026-07-19 01:30 UTCBy AlphaScala Research DeskSource reporting: livemint.comEditorial standards

Why the 6.7% SIP return claim is mathematically wrong

A viral claim that SIPs delivered just 6.7% annual returns on the Nifty over 20 years is mathematically flawed. The correct XIRR calculation shows 10-13% returns.

Continue with

Boeing Locks $3B Revolver, $5B Liquidity Covenant After Expired Facility

How to start trading stocks as a beginner?

A number is making the rounds on social media: 6.7%, presented as the real annual return that systematic investment plans (SIPs) in the Nifty have delivered over 20 years. The figure has been viewed more than half a million times on X, alongside the suggestion that the entire SIP ecosystem is a confidence trick played on millions of trusting Indians.

The claim comes from an unreviewed research paper hosted on ArXiv, a site that does not conduct peer review. The mathematics behind it is flawed.

The calculation takes the total growth of a 20-year SIP and annualizes it as though every rupee had remained invested for the full two decades. In reality, the first instalment compounds for 20 years, while the most recent contribution has barely had a fortnight to grow. On average, the money was invested for only about half the period. Annualizing the return over the full 20 years mechanically halves the answer.

It is as if you timed a runner over an entire track after watching only the second half, then declared him slow.

The right way to measure a SIP is to ask a different question: what single rate of return, applied to each instalment for the time that instalment was actually invested, would produce the final corpus? That is precisely what the XIRR calculation measures. It remains the only appropriate way to evaluate a series of investments made at different points in time.

Rework the calculations correctly over the same period across various indices, and the annual return comes to 10-13%, consistent with long-term equity returns.

Value Research's database contains 290 diversified equity funds with at least five years of performance history. Every single one has delivered positive returns to a monthly SIP over that period. Nearly 200 funds have generated more than 10% annual SIP returns. The weakest fund still delivered just under 6%. This is not what a disaster zone looks like.

What makes this narrative particularly persuasive is that it is attached to something that is actually true. The claim argues that while distributors quote 15% returns, the average investor rarely earns them because people invest aggressively during bull markets and lose conviction during downturns. That part is correct. It is an argument against investor behaviour, not against SIPs.

The very purpose of a SIP is to remove emotion from investing, ensuring investors continue buying through both dull and frightening markets rather than sabotaging their own long-term returns. The viral claim takes a genuine lesson about investor psychology and attaches it to the exact opposite conclusion.

There is another point the alarmists hope investors overlook. Returns appear subdued because markets have remained broadly flat for nearly two years. A flat market is close to the worst possible environment for reported SIP returns. It is also the best possible environment for what a SIP is actually doing underneath: accumulating more units every month while sentiment remains weak.

The very market conditions being presented as evidence that SIPs have failed are, in fact, when the strategy works hardest. The payoff comes later, when markets eventually resume their long-term upward trajectory.

If there is one lasting lesson, it is not about SIPs. It is about numbers that conveniently confirm what people already fear: that they are being cheated or that someone smarter is taking advantage of them. Those are precisely the claims that deserve the closest scrutiny. It also helps to ask who produced the number, and what they would rather sell instead. The answer is often a commission-generating product marketed by someone who would much prefer investors abandon the one arrangement that pays nobody anything at all.

Dhirendra Kumar is founder and chief executive officer of Value Research, an independent investment advisory firm. The full list of funds with positive SIP returns is available on the Value Research website.