Your SIP return differs from the fund’s advertised return because they measure different things. The advertised number usually assumes one lump sum invested on a single day. A SIP invests a little every month at a different price. So each instalment stays invested for a different time.
Key Facts
- A fund’s advertised return is usually CAGR, which assumes one lump sum invested for the whole period.
- A SIP return is usually shown as XIRR, which counts the date of every instalment.
- In a 12-month SIP, the average instalment stays invested for only about 6.5 months.
- Regular Plan and Direct Plan returns differ, because the two plans have different expense ratios.
- Fund houses publish both lump-sum and SIP returns in their monthly factsheets.
You start a SIP. A year later, you look at your statement. Then you see the fund advertised a higher number. Did the fund mislead you? Usually, no. The two numbers answer two different questions. This post explains why they differ, with a simple rupee example you can check yourself.
What Does an Advertised Return Actually Measure?
Most advertised returns are point-to-point returns. They show how much a lump sum grew between two dates. For periods over one year, the fund shows CAGR. CAGR stands for Compound Annual Growth Rate. It is the yearly growth rate that turns your starting amount into the ending amount.
A SIP works differently. A Systematic Investment Plan (SIP) means you invest a fixed amount every month. So your money goes in on many dates, not one.
| Point | Lump-sum CAGR | SIP XIRR |
|---|---|---|
| Money invested | All on day one | A fixed amount every month |
| Time invested | Same for all money | Different for each instalment |
| Best used to | Compare funds | Check your own SIP |
| Where you see it | Fund ads, factsheets | Your statement, SIP calculators |
Why Your SIP Return Looks Different
1. Each instalment gets a different time to grow
Your first instalment stays invested for the full year. Your last one stays for just a few days. So the average instalment works for about half the period. That is why your rupee gain looks smaller than the fund’s headline number.
2. Each instalment buys at a different NAV
NAV means Net Asset Value. It is the price of one unit of the fund. When NAV is low, your monthly amount buys more units. When NAV is high, it buys fewer. A lump sum buys at one NAV only.
3. Absolute return and annualised return are not the same
Absolute return is your total gain divided by your total investment. Annualised return is the gain spread over one year. Many people compare an absolute number with an annualised number. That comparison is not fair.
4. The plan type changes the number
Many advertised returns come from the Direct Plan. A Direct Plan has a lower expense ratio. The expense ratio is the yearly fee a fund charges for running the scheme. A Regular Plan has a slightly higher fee because it includes advice and service. Please verify this information from the latest official source.
5. Start and end dates are different
The fund may show returns up to the last month-end. Your statement may show returns up to today. Even a few days can change the number. So always check the dates on both.
6. Exit load, taxes and missed instalments
Your own return can change if you redeem early and pay an exit load. Taxes can also reduce what you keep. A missed instalment changes the timing too. The fund’s headline figure includes none of this.
A Worked Example With Rupees
Suppose a fund’s NAV moves from ₹100 to ₹112 over 12 months. The fund’s one-year return is 12%. This is a made-up example for learning. It is not a real scheme.
You invest ₹10,000 on the first day of each month. The NAV on those days is: 100, 96, 92, 95, 99, 103, 106, 104, 108, 110, 111 and 112.
| Item | Lump sum | Monthly SIP |
|---|---|---|
| Total invested | ₹1,20,000 | ₹1,20,000 |
| Units bought | 1,200 | About 1,169.6 |
| Value at NAV ₹112 | ₹1,34,400 | About ₹1,30,995 |
| Absolute gain | ₹14,400 (12%) | About ₹10,995 (9.2%) |
| Annualised (XIRR) | 12% | About 17.3% |
Your SIP gain is 9.2%, which is lower than 12%. But your XIRR is about 17.3%, which is higher than 12%. Why? Your money was invested for less time. XIRR adjusts for that. It shows a higher yearly rate on money that stayed invested for a shorter time.
So neither number is wrong. Each one answers a different question. Note that this is an illustration, and future returns are not guaranteed.
Who Explains This to Investors?
Deepak Gokul holds the CWM® certification, is NISM-Series-XVII: Retirement Adviser Certified, and is an IRDAI Licensed Insurance Advisor. He has over 19 years of experience helping families across India and abroad. His firm, Deepak Wealth Framework Pvt Ltd, is AMFI Registered as a Mutual Fund Distributor.
How Do You Compare Returns Fairly?
Follow these four steps.
- Pick the same start date and end date for both numbers.
- Check the plan type. Compare Regular with Regular, or Direct with Direct.
- Use your statement’s XIRR for your SIP. Do not use the lump-sum CAGR.
- Compare with the SIP return in the latest factsheet on the fund house or AMFI website.
What Should You Do Next?
First, do not stop a SIP because one number looks lower. Second, judge a SIP over 5 to 10 years, not 12 months. Short periods swing a lot. Third, check that your fund suits your goal and risk level. For rules on how funds must disclose returns, see the SEBI website.
Frequently Asked Questions
Why is my SIP return lower than the fund’s 1-year return?
The fund’s 1-year return assumes one lump sum invested a year ago. Your SIP money went in over 12 months. Most instalments stayed invested for less than a year. So they had less time to grow, and your total gain looks smaller in rupees and in percentage.
What is XIRR in a mutual fund SIP?
XIRR is the yearly return on money that goes in at different dates. It gives each instalment credit only for the days it stayed invested. So it suits SIPs, where you invest every month. Most apps and statements show XIRR for SIPs. Fund factsheets show CAGR for lump sums.
Is CAGR or XIRR better for judging my SIP?
XIRR is better for your own SIP because it counts every instalment date. CAGR is fine for comparing funds on a single lump sum. Use CAGR to compare two funds. Use XIRR to check how your own SIP has done.
Can a SIP return be higher than the fund’s advertised return?
Yes. If the market falls after you start, your later instalments buy more units at low prices. When the market recovers, your XIRR can beat the lump-sum return over the same period. It can also fall below it in a steadily rising market. Neither result is guaranteed.
Does a Regular Plan give lower returns than the advertised return?
Advertised returns are often shown for the Direct Plan, which has a lower expense ratio. A Regular Plan pays a commission for advice and service, so its NAV grows slightly slower. Check the Regular Plan return in the factsheet. Please verify this information from the latest official source.
How can I compare my SIP with the fund’s return fairly?
Pick the same start and end dates. Then work out your XIRR with a SIP calculator or your statement. Compare it with the fund’s SIP return in the latest factsheet, not its lump-sum CAGR. Also compare against the same plan type, Regular or Direct.
Not sure if your SIP is on track? Share your statement with us. We will check your XIRR and goals with you. Book a free chat at deepakwealth.com.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully. This content is for illustrative and educational purposes only. We deal in Regular Plans.