Investing through a Systematic Investment Plan (SIP) is widely seen as a disciplined way to build wealth over time. Many investors begin their SIP journey with confidence, especially during market dips. However, just a few months later, opening an investment app and seeing a sharply negative return can cause unnecessary panic.

If your SIP return suddenly shows a steep fall — even something like minus 70 percent — it does not necessarily mean your money has vanished. In most cases, the number reflects a calculation effect rather than a real loss. Understanding how SIP returns work can help you stay calm and make smarter financial decisions.

Why SIP Returns Sometimes Look Alarming

Short-term SIP returns can appear exaggerated because of the way they are calculated. When markets fluctuate early in your investment journey, the XIRR (Extended Internal Rate of Return) metric annualises the return, which can magnify small movements.

For example, suppose you start a monthly SIP of ₹10,000 after a market correction. If the market dips slightly in the following month, your XIRR may display a sharply negative figure. However, your actual portfolio value may have fallen only marginally.

This happens because the investment duration is still very short. Annualised calculations assume the same performance continues for a full year, which can distort early results.

SIP vs Lump-Sum: Why Timing Matters

A SIP is fundamentally different from a lump-sum investment. Instead of investing one large amount at once, SIP contributions enter the market at different times.

Each instalment:

• Gets invested at a different market level
• Remains invested for a different duration

Because of this staggered approach, every SIP instalment behaves like an independent mini-investment. When markets are volatile, some instalments may show gains while others show temporary losses.

This timing variation makes overall return calculation more complex than a simple percentage gain or loss.

Understanding XIRR in Simple Terms

XIRR is designed to calculate annualised returns for investments that involve multiple cash flows at different times — exactly how SIPs work.

It considers:

• Amount invested
• Timing of each instalment
• Current portfolio value

While XIRR is highly useful for long-term evaluation, it can look misleading in the early months. Even a small monthly change can be annualised into a very large positive or negative percentage.

The math is correct — but the short time frame can make the number look more dramatic than reality.

Practical Tips for SIP Investors

To avoid confusion and anxiety, keep these points in mind:

1. Don’t panic over early returns
Short-term XIRR figures often exaggerate performance, both positive and negative.

2. Check actual portfolio value
Always compare your total invested amount with the current value to understand the real situation.

3. Think long term
SIPs are designed for wealth creation over years, not weeks or months.

4. Understand instalment behaviour
Different entry points naturally create temporary ups and downs.

5. Use calculators carefully
SIP calculators provide estimates based on assumptions, not guaranteed outcomes.

How to Evaluate a New SIP Correctly

If your SIP is less than one year old, the best metric to track is absolute return.

Absolute return simply compares:

Total amount invested vs current portfolio value

Example:

• Invested ₹30,000 → Current value ₹27,000 = –10% return
• Invested ₹30,000 → Current value ₹33,000 = +10% return

Rule of thumb:

• SIP under 1 year → Focus on absolute return
• SIP over 1 year → Use XIRR (annualised return)

Absolute return gives a clear short-term snapshot without distortion from annualisation.

Why Time Horizon Is Crucial

Consider two investors who both grow ₹10 lakh into ₹30 lakh. One achieves this in five years, while the other takes fifteen years. Although both tripled their money, the speed of growth is very different.

This is where annualised metrics like XIRR become valuable — but only after sufficient time has passed.

Stay Calm and Focus on the Bigger Picture

Market volatility in the early months of a SIP is completely normal. Sharp-looking return percentages often reflect calculation mechanics rather than actual wealth erosion.

Instead of reacting emotionally to short-term numbers:

• Focus on long-term consistency
• Monitor actual portfolio value
• Stay disciplined with your SIP

Patience and time in the market remain the most powerful tools for wealth creation.

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Mutual fund investments are subject to market risks. Consult a certified financial advisor before making investment decisions.