A viral SIP myth is fooling investors. Here's why

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Every few months, a number escapes onto social media and takes on a life of its own. This time, it is 6.7%, presented as the real return that SIPs have delivered on the Nifty over 20 years, compared with the 12-15% the industry supposedly promises.

The figure has been viewed more than half a million times on X, alongside the suggestion that the entire SIP ecosystem is a confidence trick played on millions of trusting Indians.

There is a name for the problem this raises, coined by Italian software engineer Alberto Brandolini: the Bullshit Asymmetry Principle. The energy needed to refute nonsense is an order of magnitude greater than the energy needed to produce it.

The figure comes from an unreviewed research paper. ArXiv, the site that hosts it, does not conduct peer review.

More importantly, the mathematics behind the claim is flawed.

It takes the total growth of a 20-year SIP and annualizes it as though every rupee had remained invested for the full two decades. In reality, the first instalment compounds for 20 years, while the most recent contribution has barely had a fortnight to grow.

On average, the money was invested for only about half the period. Annualizing the return over the full 20 years mechanically halves the answer.

It is as if you timed a runner over an entire track after watching only the second half—and then declared him slow.

The right way to measure a SIP is to ask a different question altogether: what single rate of return, applied to each instalment for the time that instalment was actually invested, would produce the final corpus?

That is precisely what the XIRR calculation measures, and it remains the only appropriate way to evaluate a series of investments made at different points in time.

Rework the calculations correctly over the same period across various indices, and the annual return comes to 10-13%, as it always has.

Value Research's database contains 290 diversified equity funds with at least five years of performance history. Every single one has delivered positive returns to a monthly SIP over that period.

Nearly 200 funds have generated more than 10% annual SIP returns, while the weakest fund still delivered just under 6%. The complete list is available at https://bit.ly/4vIXNLW. This is not what a disaster zone looks like.

What makes this narrative particularly persuasive is that it is attached to something that is actually true.

The claim argues that while distributors quote 15% returns, the average investor rarely earns them because people invest aggressively during bull markets and lose conviction during downturns.

That part is correct—and has been discussed repeatedly. But it is an argument against investor behaviour, not against SIPs.

The very purpose of a SIP is to remove emotion from investing, ensuring investors continue buying through both dull and frightening markets rather than sabotaging their own long-term returns. The viral claim takes a genuine lesson about investor psychology and attaches it to the exact opposite conclusion.

There is another point the alarmists hope investors overlook.

Returns appear subdued because markets have remained broadly flat for nearly two years. A flat market is close to the worst possible environment for reported SIP returns.

It is also the best possible environment for what a SIP is actually doing underneath—accumulating more units every month while sentiment remains weak.

The very market conditions being presented as evidence that SIPs have failed are, in fact, when the strategy works hardest. The payoff comes later, when markets eventually resume their long-term upward trajectory.

If there is one lasting lesson, it is not about SIPs. It is about numbers that conveniently confirm what people already fear—that they are being cheated or that someone smarter is taking advantage of them.

Those are precisely the claims that deserve the closest s...