Long term SIP does not remove risk and other important lessons from historical equity returns

Past performance doesn’t guarantee future returns. However, investors can learn several things from historical performance analysis.

ET Wealth takes a close look at the historical performance of the Sensex for different holding periods.


The fabulous Sensex
Sensex generated 15.8% CAGR in its 38 years of existence. However, average return was only 12.1% post-2000.


Source - BSE; Data Compiled by ETIG Database.

* Risk comes down with increase in holding period. For instance, while the Sensex generated negative 5-year CAGR returns in 8.44% of holding periods, it generated negative 10-year CAGR returns only in 0.87% holding periods.


* Though risks associated with stock investing come down in the long term, it is never risk free. There have been instances of losses even after remaining invested for 10 years.

* SIP returns vary according to market conditions. While 10-year SIP generated fabulous returns during 1982-92, it generated negative returns between 1992-2002. Even 10-year SIP can generate negative returns if market falls continuously.

* The average return profile has come down drastically since 2000, compared to the period ending 1999. Investors need to reign in return expectations.
Five years is not long enough
Sensex has generated negative returns over 5-year holding periods.


Risks comes down with 10-year holding period
Negative returns occured only in 0.87% of 10 year holding periods.



Volatility continues even for investors using SIP
SIP returns measured on basis of last day value. It shows good returns in bull market


Long-term SIP doesn't remove risk
Even 10-year SIP can generate negative returns if market falls continuously