The only way to actually lose money on your SIP

Summary: Your SIP was at 40 per cent. Then it crashed to 4 per cent, and you did nothing wrong. The maths explains why, and why you're actually better positioned than you think. Imagine checking your mutual fund app on a Sunday morning, coffee in hand, fully expecting to feel good about yourself. And why not? You had done everything right. Three years ago, you started a SIP in a broad-based index, ignored every stray tip, and made contributions every single month without fail. And for a while, the discipline paid off. At the end of year one, your XIRR, the return metric that measures what every rupee of your SIP has actually earned, sat at a dizzying 40 per cent. At 18 months, still 39 per cent. Then the recent correction came. By the second year, that 40 per cent had collapsed to 4. Not gradually but violently—a 35-percentage-point freefall in a market that had itself corrected only 18 per cent. Now, at the three-year mark, even after a partial recovery, the return is 9 per cent. You might be puzzled. What did you do wrong to end up worse off than even the market? Nothing, as it turns out. The reason your returns look battered is not bad investing but simply the mathematics of how a young portfolio behaves. Why early years make your SIP returns look bad The wild swings in the XIRR are not signs of failure. They are the natural result of doing SIPs in the early stages. In the first few years, the invested corpus is still small. Each new monthly instalment makes up a large share of the total portfolio. Because of this, recent market movements dominate the calculation of returns. When markets rise sharply, the XIRR climbs to flattering levels. When markets correct, it drops just as sharply—or more. Think of it this way. SIPs are a series of separate purchases made monthly. Each instalment is its own purchase, made at whatever price the market offers that month. When markets fall, it is only the most recent instalments, bought at higher prices before the decline, that end up underwater. Not the entire portfolio. The earlier ones, purchased when prices were lower, still sit in positive territory. In other words, a correction hurts only the recent instalments, and actually helps the ones yet to come by lowering the purchase price. So a bruised XIRR is not evidence that the portfolio has underperformed the market. It is simply evidence that the portfolio is young and has not yet reached the stage where it can absorb volatility. That stage comes later. And it occurs when something important shifts in the portfolio’s makeup. What tames wild returns What changes over time is the balance between the money you invest and the money the portfolio generates. In the early years, most of the portfolio consists of your contributions. The gains are small relative to what you keep adding. Over time, the equation shifts. The portfolio grows large enough that its gains begin to rival, and eventually exceed, the monthly investments. We call that shift the crossover point. For this analysis, we define it as the moment when the portfolio reaches roughly twice the total amount invested—that is, when accumulated gains equal total contributions. This is our analytical threshold, not a universal standard, but it serves as a useful marker for when the portfolio starts to develop its own momentum and becomes more growth-driven than contribution-driven. After the crossover, volatility feels less severe. Compounding becomes visible in a more durable way. So if your SIP returns look erratic in the first few years, that is simply how XIRR behaves in the early stages, driven by prevailing market conditions. The portfolio starts to absorb corrections better only after it has substantially outgrown the money put into it. The question then becomes: how long does that take? How long does it take for compounding to show results Under textbook conditions, a steady 12 per cent annual return, roughly the long-term Indian market average, a Rs 10,000 monthly SIP reaches crossover at around year 12. But markets do not deliver steady returns. A 12 per cent return sustained for 12 years is a spr

This article was originally published on March 20, 2026.