The empirical evidence in India suggests that the returns from a SIP stabilize around the underlying asset's long term average return.
I analyzed the Nifty50 data from 01 January 2001 to 01 November 2025. I assumed various investors invested a fixed amount at beginning of each month for a tenure of 299 months (25yrs), 240 months (20yrs), 180months (15yrs), 120 months (10yrs), 60 months (5yrs) and 36 months (3yrs). Actual Nifty50 data (closing price on first day of each month) was taken for the sake of convenience, assuming dividend yield cancelled the fund management charges and tracking error (for ETF investors) and brokerages and impact cost for direct equity investors.
The analysis indicates that an SIP in Nifty50 started to outperform the Nifty50 index return only after 7 yrs. The outperformance peaked around 180 months (15yrs) and started to decline. For 20 yrs tenure, Nifty50 monthly SIP returns (CAGR) is almost same as the change in Nifty50. For 25 yrs tenure, SIP returns outperformed marginally.
We can look at this picture from various angles. For example—
· In case of passive funds or benchmark investing, investors who have funds readily available, and want to assess whether to invest lump sum or take an SIP route, investing lump sum might be a better idea. However, for investors who do not have funds readily available but have regular cash inflows, SIP is a good option, instead of accumulating funds and trying to time the market.
· In case of active funds, performance of SIP would largely depend on the quality of the fund management team. A good team which is able to assess the macro and market trends well in advance and position the fund accordingly, is more likely to outperform the peers. However, over a longer period, the answer to ‘SIP vs Lump Sum’ question would remain the same as in the case of passive funds
· Passive funds may be a better option for a Goal based investment (education, asset purchase, marriage, travel, retirement planning, etc.), as the performance of these funds is less volatile. For wealth creation, investment in active funds may be more rewarding.
Conclusion
Timing the market may not yield any significant outperformance. If you have funds, invest today, if you have flows, do an SIP.
Benchmarks (e.g., Nifty50) yield normal returns (usually a small premium to the nominal GDP growth of the country) over a longer period. For the past 25 years, Nifty50 CAGR has been in the range of 12-14%. Investors should accordingly adjust their expectations. The SIP returns in passive funds (portfolios) mirroring the benchmark are marginally higher only if the investment is continued for a long period (7 yrs or more).
Diversified funds (and portfolios) have historically outperformed the benchmark indices. However, the outperformance depends on the quality of the fund management team. It is therefore important to select the funds prudently, and not just based on their recent performance. IN this the role of investment advisor is critical.
