Following US 10-year bond yields reaching a 2002 high and crude oil prices remaining elevated, most assets, including equities, are under significant stress. For the Indian equity market, the situation is even grimmer, as the key benchmark indices are set to end the year in the red for the first time in 11 years. The Nifty 50 index is down around 13.50% YTD, the BSE Sensex is down close to 15% YTD, whereas the Bank Nifty index is downaround 8.50%.
This has affected the Compound Annual Growth Rate (CAGR) of the key Indian indices. The Nifty 50’s 5-year CAGR has fallen below 5.50%, though it remains above 5%. Over the last five years, Bank Fixed Deposit returns have been around 6% to 6.50%. The poor performance of Indian equities has weighed on mutual funds’ returns as well. In the last five years, the Nifty 50 SIP has delivered an XIRR of 4.50%. So, both forms of equity assets, which are highly risky, have failed to beat the average annual inflation rate of 6% over the long term.
Should you evaluate the slogan ‘Mutual Fund Sahi Hai’?
This raises the question of whether the mutual fund houses’ slogan ‘Mutual Fund Sahi Hai’ needs an evaluation, or whether one should look at the returns given by gold in this time? The yellow metal has given an absolute return of 200% and a CAGR of around 25%.
Is Mutual Fund Sahi Hai? | Experts chip in
Speaking on the mutual fund debate mentioned above, Seema Srivastava, Senior Research Analyst at SMC Global Securities, said, “The investors need to distinguish between Nifty 50 price returns, Nifty 50 Total Return Index returns, mutual-fund NAV returns, SIP returns and fixed-deposit returns before making a meaningful comparison.”
The SMC Global Securities expert said the Nifty 50 index had fallen from its 52-week high of 26,373.20 to a 52-week low of 22,182.55, indicating considerable volatility during the period. The five-year comparison itself is striking. Nifty 50 closed at approximately 17,618.15 on September 30, 2021, compared with 22,620 on September 30, 2026.
Nifty’s disappointing performance in long-term
Pointing towards the disappointment for the long-term stock investors, Seema Srivastava said, “On a simple price-index basis, this translates into a five-year CAGR of only about 5.2%. That number is significantly lower than the return investors normally associate with long-term equity investing.”
“Data from mutual-fund industry sources illustrates this weakness particularly clearly: DSP’s latest factsheet data shows the Nifty 50 TRI generating a 5-year SIP return of 4.89%, while the corresponding Nifty 50 price index SIP return was 3.58%; the same data shows the fund’s benchmark five-year SIP return at only around this level,” Seema added.
Are we ignoring dividends?
Highlighting the dividends factor that doesn’t reflect in Nifty 50 or equity mutual fund returns, Avinsh Gorakshkar, Founder of Avinash Mentor Research, said, “While comparing the five-year CAGR of Nifty 50 index and mutual funds and SIPs, we are ignoring one income, which doesn’t reflect in these, dividends. Fund managers of mutual fund houses invest in the name of the fund house, while a retail investor invests in an individual capacity. But all stock investors get dividend income, which in the case of dividend king stocks crosses over 7% annually.”
CAGR vs XIRR
Seema Srivastava of SMC Global Securities said that the distinction between CAGR and XIRR is critical here. A lump-sum investor who invested ₹10 lakh five years ago and held the investment continuously would have experienced one return path, while an investor who put ₹10,000 every month would have experienced another, because each SIP instalment entered the market at a different index level.
“It is technically incorrect to say that “Nifty has delivered only 4.5%” based on the SIP XIRR. The 4.5% figure refers to a specific cash-flow pattern, whereas the roughly 5.2% calculation above is the five-year CAGR of the price index. For an investor, the Nifty 50 TRI is the more appropriate benchmark for a lump-sum equity investment, while XIRR is appropriate for a SIP. This distinction becomes particularly relevant when discussing the popular “Mutual Fund Sahi Hai” message,” Seema said.
What does the slogan ‘Mutual Fund Sahi Hai’ mean for investors?
Highlighting the feature of the slogan ‘Mutual Fund Sahi Hai’, Anuj Gupta, a SEBI-registered market expert, said, “The Mutual Fund Sahi Hai slogan doesn’t mean all mutual funds can be chosen for a whopping yield in the long term. The numbers we are discussing are an average number, and some mutual funds have generated alpha returns in these five years.”
He said that Quant Small Cap Fund, Motilal Oswal Midcap Fund, HDFC Flexi Cap Fund, etc., have delivered alpha returns in the last five years.
“While comparing the returns given by an asset, one should look at the index also. If an index fund has generated a higher return than the index, we can assume a better return when the market improves,” said Gupta.
“The slogan was never a guarantee that every mutual fund would outperform an FD over every three-, five- or seven-year period. A mutual fund is merely an investment vehicle; its underlying asset allocation determines its risk and return. An equity mutual fund can fall sharply, a debt fund behaves differently, a hybrid fund combines asset classes, and a sectoral fund can be substantially more volatile than the Nifty 50,” Seema Srivastava of SMC Global Securities said.
What fair comparison says
Experts believe a better comparison is between a five-year bank FD, a Nifty 50 index fund, diversified equity funds, hybrid funds and debt funds, with taxation and inflation incorporated into the analysis. The NAV data also reinforces this point. For example, the Nippon India Index Fund – Nifty 50 Plan Direct Growth had a NAV of ₹41.9698 on September 29, 2026, while the regular Growth Plan NAV was ₹38.8126 on the same date. The fund’s August 2026 factsheet showed a five-year annualised return of 8.09% for its Direct Plan versus 7.58% for the Regular Plan, compared with 8.32% for the Nifty 50 TRI benchmark over the same period. This is a useful illustration of why NAV alone should never be interpreted as return.
They said that an NAV of ₹42 does not mean the fund is expensive, and a NAV of ₹10 does not mean it is cheap; investors should examine the percentage return generated from their actual purchase dates. It also demonstrates the impact of expenses and tracking differences: even a passive index fund designed to replicate the Nifty 50 will generally lag the TRI slightly due to expense ratios, cash holdings, transaction costs, and tracking error.
“Nifty 50’s weak five-year price CAGR of roughly 5.2%, the approximately 4.5–4.9% five-year SIP return range reported by recent sources, and the materially different performance of several diversified active funds together show that “equity,” “Nifty,” “SIP” and “mutual fund” are not interchangeable concepts. The real question for investors is no longer simply whether “Mutual Fund Sahi Hai?”, but which asset class, which fund strategy, what allocation and what investment horizon are appropriate for the objective,” Seema concluded.
Disclaimer: This story is for educational and informational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified financial experts before making any investment decisions.
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