A recent case shared by CA Abhishek Walia highlights how an investor’s actual returns can be far lower than the performance numbers shown by the funds they invest in. A salaried professional had been investing ₹18,000 per month in mutual fund SIPs for four years. On paper, the funds showed an impressive compound annual growth rate (CAGR) of 11%. However, when he calculated his portfolio’s XIRR — which reflects the true returns on his actual cash flows — it turned out to be only 6%. This was even lower than the 7% he could have earned from a fixed deposit over the same period.
The shortfall wasn’t due to poor-performing funds, but to the investor’s own decisions. He had started his SIPs in mid-2019 but paused them for ten months during the COVID-19 pandemic. In that time, he also switched funds twice, chasing those that were ranked as “top performers” at the time. In mid-2022, during a market downturn, he withdrew ₹2.2 lakh to meet a short-term need, only to reinvest in the same fund six months later — but at higher unit prices after the market had recovered.
These timing missteps meant he missed out on key phases of compounding during market rebounds, eroding the benefit of staying invested. While the mutual fund itself delivered 11% to investors who held on steadily, his portfolio’s return lagged because of disrupted investments and poorly timed exits.
Walia emphasised that real investment success comes from discipline, not constant tinkering. He advised maintaining a long-term horizon of five to seven years, automating investments to avoid emotional decision-making, and ignoring short-term market noise. As he put it, “Your wealth is built in the market’s time, not your timing.”
The episode also underlines the importance of monitoring XIRR rather than relying solely on fund CAGR, as XIRR captures the true impact of investment behaviour. For many investors, chasing returns, switching funds frequently, or pausing SIPs can cost more than enduring temporary volatility in the market.
