Many investors misjudge their SIP returns because they focus on the total amount invested rather than the actual time each instalment stays in the market. This misunderstanding often leads to the false conclusion that SIPs underperform fixed deposits.
Personal finance advisor Gaurav Mundhra highlighted this problem through an example from one of his clients. The client had invested ₹1,20,000 through a ₹10,000 monthly SIP, earning about ₹10,000 profit, and concluded that his returns were just 8% — lower than an FD. At face value, the number looked disappointing, but the calculation was flawed.
Mundhra pointed out the detail most investors overlook: the money was not invested for one full year. While the total SIP contribution spanned 12 months, each instalment was invested for a different duration. The first ₹10,000 stayed in the market for 12 months, the second for 11 months, the third for 10 months, and the last instalment had barely been invested for days. When averaged out, the money was actually invested for about six months, not twelve.
Once this is accounted for, the returns look very different. An 8% gain in roughly half a year translates to around 16% per year when annualised, beating FD returns by a wide margin, especially in a volatile market period. The client realised that his SIP wasn’t underperforming — his method of judging it was.
This miscalculation is extremely common. Investors often assume that if they have been investing for a year, their full capital has also been compounding for a year, which is not true in SIPs. Each payment compounds for a different length of time, so returns look relatively smaller in the first year, even though the actual performance may be strong.
SIP investing rewards consistency and patience, not early exit. Evaluating returns too soon — or treating SIPs like lump-sum investments — can lead to unnecessary worry and poor decision-making. As Mundhra puts it, “Compounding rewards patience, not panic.” Early SIP results rarely tell the full story, and understanding the timing behind compounding can completely change how performance is perceived.
