How a single year of poor/subdued market performance, dramatically reduce your SIP returns? This table illustrates this: How a single year of poor market performance reduces the overall longer-term SIP returns (XIRR), even when preceded by four years of exceptional gains. For a monthly SIP of Rs 10,000 in Smallcap funds, the 4-year XIRR from November 2020 to November 2024 (total investment: Rs 4.8 lakh) shows top-3 performers delivering 40.6%, 38.0% and 37.3%. However, extending the period by just one year to November 2025 (total investment: Rs 6.0 lakh), which captures a subdued (downturn) market, slashes the 5-year XIRR for the same performers to 27.4%, 23.1% and 20.0% respectively. Still great, but not as it was just a year back (and may disappoint new investors who started around 2020). This erosion occurs because XIRR is highly sensitive to the timing and magnitude of returns in a compounding sequence. So, a recent 12 months of negative or muted performance dilutes the earlier outsized gains disproportionately, as the larger accumulated corpus suffers absolute losses, pulling down the rate proportionally. Note - Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Disclaimer - The funds/indices shown above are for illustration only. It is not a recommendation to buy/sell/hold. Please get in touch with your investment advisor for customised investment advice based on your risk profile and unique requirements.

Nov 7, 2025 · 6:13 AM UTC

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Replying to @StableInvestor
One more year of subdued return and XIRR will show lot more modest. This is why retail investors always exit during bear/stagnant phase.
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Replying to @StableInvestor
insightful sir. thank you.
Replying to @StableInvestor
The Practical Pal
 @thepracticalpal
Oct 28
My mutual fund delivered a phenomenal +25% return for three straight years. In year four, it tanked by -25%. The question: What's the true average annual return? (Hint: NOT 12.5%.) That single loss proved the power of volatility vs. compounding. Share your answer ! 👇#compounding
Replying to @StableInvestor
It's not one years affect, it's last year's impact.... Returns (compounding) are always geometric, so the impact of last year is always the maximum....
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Replying to @StableInvestor
Itna dimag kyu lagana. Unnecessary complicating things doing this analysis. Market goes through this nothing new. It may happen 3yr with not much movement. Fir kya karoge ?
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Replying to @StableInvestor
I think this index outperformed all the active small cap mutual funds..... 09/11/2025 to 06/11/2025 ---> 32.7% 09/11/2025 to 06/11/2024 ---> 52.5% I think active small cap funds are in danger
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Replying to @StableInvestor
Four years of good gains easily overshadowed by one year of significant decline is a powerful lesson in market timing isn't it?🤔🤔
Replying to @StableInvestor
Isn't the reverse also true? Continuing SIPs through a bad year will produce outsize returns when the market is performing well.
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Replying to @StableInvestor
Very True... Even my investment amount keep on increasing but over all profits r much more down from last year... As market didn't fall drastically average of my sip r yet on much higher levels... Now any big fall all gain might wipes out😪😪😪
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Replying to @StableInvestor
Superb data point. Shows that Smallcap can deliver great return with higher risk.
Replying to @StableInvestor
it was a good decision to stay away from small cap funds! peace of mind > xirr
Replying to @StableInvestor
Similarly one year of good performance can again improve xirr. Basically faltu ka data.
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Replying to @StableInvestor
Do you have similar data for othe categories like, mid, large, flexi ,multi. Hybrid? Or where can I derive it
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Replying to @StableInvestor
Exactly.. those days are not going to come soon when ur SIP used to give 30% CAGR for past 3 years... News investors will experience something they only heard from experienced investors.
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Replying to @StableInvestor
One more year of time correction will make the market more attractive. Post COVID returns are not sustainable.
Replying to @StableInvestor
Add 10 yrs as well
Replying to @StableInvestor
Great data.📈
Replying to @StableInvestor
👍
Replying to @StableInvestor
During the same year USA and Chinese markets delivered 40%+ returns , even Gold as well. Hence diversification is always always important. Many retail investors didn't realise this before 2024
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Replying to @StableInvestor
But more units will be accumulated in the 5th year which will dramatically increase the corpus during the next bull run. Patience is the key.