You saw the market decline as an investment opportunity and started a new SIP. Two months later, when you open your investment app, you see your return is -71.88 percent.

It's natural to panic. Did your 20,000 rupees really sink to just a few thousand?
The answer is no. This is where many investors make the mistake. The numbers you see aren't your actual losses, but rather a mathematical calculation that exaggerates short-term fluctuations. Understanding how SIP returns are calculated and when to trust which figures can help you avoid unnecessary worry.

When the numbers don't match reality

Let's say you started a monthly SIP of Rs 10,000 in January after the Nifty 50 fell. The market fell again in February. When you checked your returns in early March, the XIRR of the SIP showed -71.88 percent.

This doesn't mean your ₹20,000 has dwindled to just ₹5,624. In reality, your portfolio has fallen, but only ''>The intricacies of SIP investing

A SIP is not a single investment but a series of investments that enter the market at different times.

• Enters the market at different levels.


• It remains invested for different periods.

This time difference alters the results of different installments within the same SIP. For example, in a SIP from October 2024 to March 2025, the October installment remains invested for six months, while the March installment remains invested for only one month. Therefore, each installment experiences its own independent return.

What is XIRR and when can it be misleading?

XIRR (Extended Internal Rate of Return) calculates the annualized performance of multiple investments made at different points in time. This method works well over the long term because market fluctuations average out over time.

However, it can be misleading when the SIP is only a few months old. For example, a 5 percent gain in one month would mathematically translate into an annualized return of approximately 60 percent for the entire year. Similarly, even a small drawdown can result in a significant annualized loss.

Smart way to read SIP returns

Here's a simple rule for beginning investors:

• SIPs of less than 1 year: Look only at the "Absolute Return." This is a straightforward calculation of how much you invested and its value today. If you invested 30,000 and the value is 27,000, that's a direct loss of 10 percent.


• SIPs over 1 year: Now, evaluate your XIRR. Time becomes more important over longer periods, so it's important to look at annualized returns.

Don't be afraid of math

Return figures can fluctuate rapidly at the beginning of a SIP. This isn't because your investment is sinking, but rather because of the annualized calculations. Understanding returns in the right context will help you stay calm and stay invested for the long term.

Disclaimer: The information provided here is for financial literacy and education purposes only. Mutual fund investments are subject to market risks. Consult your financial advisor or carefully read the scheme-related documents before making any investment.