How Long-Term Investing Can Reduce the Risk of Low Returns
- Staying invested for 7+ years reduces the chance of negative returns to near zero
- 100% of SIPs over 8 years in Sensex delivered positive returns
- Long-term SIPs show a high probability of >10% annual returns
- Step-up SIPs significantly increase wealth accumulation over time
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Table of Contents
Most investors want better returns with minimal risk. But what’s the secret? Time. The longer you stay invested, the more likely you are to avoid negative returns and achieve your goals. This blog explores why long-term investing, especially through SIPs, is your best defence against market volatility.
Why Long-Term Investing Matters for Indian Investors
Stock markets are inherently volatile in the short term. But data proves that market cycles tend to smoothen out over longer periods. Long-term investing helps ride out these fluctuations and lets you benefit from market recoveries and compounding.
Warren Buffett famously said, "The first rule of investing is to never lose money. The second is to never forget the first rule." And the best way to honour that principle? Think long-term.
How Long Should You Stay Invested to Avoid Losses?
A leading mutual fund house analyzed SIP returns from September 1996 to December 2023 using S&P BSE Sensex TRI data.
|
SIP Period |
% Times Positive Returns |
|
3 years |
84% |
|
5 years |
91% |
|
8 years |
100% |
|
10+ years |
100% |
The takeaway: An investment horizon of 8+ years gives you a 100% chance of earning positive returns.
A similar trend was observed using Nifty 50 TRI data (1999–2024). If you stayed invested for at least 7 years, the chance of loss dropped to zero.
What Returns Can You Expect Over Time?
Here’s how the probability of returns improves over time (XIRR from SIPs in Sensex TRI):
|
Tenure |
>8% Returns |
>10% Returns |
>12% Returns |
|
3 Years |
64% |
56% |
50% |
|
5 Years |
82% |
72% |
59% |
|
10 Years |
99% |
94% |
78% |
|
15 Years |
99% |
97% |
90% |
Clearly, the longer you stay invested, the better your chances of earning double-digit returns.
Long-Term Investing Reduces Return Volatility
Volatility in CAGR (compound annual growth rate) is higher in short durations. Data shows that over 10+ years, the range of CAGR narrows significantly, making returns more predictable.
In the first 10 years, CAGR might fluctuate in a ±20% band. But after that, it tends to stabilise in the 10–13% range.
Step-Up SIP: Boosting Long-Term Results
A step-up SIP allows you to increase your monthly investment every year. Let’s compare:
|
SIP Type |
Monthly Investment |
Tenure |
Expected CAGR |
Final Corpus |
|
Regular SIP |
Rs. 10,000 |
20 yrs |
14% |
Rs. 1.17 Cr |
|
Step-Up SIP (10%) |
Rs. 10,000 start |
20 yrs |
14% |
Rs. 2.26 Cr |
That’s almost double the wealth by simply increasing your SIP annually by 10%.
Why Should You Invest for the Long Term?
-
Reduces the impact of market timing
-
Maximises power of compounding
-
Improves SIP return potential
-
Helps align with financial goals more predictably
-
Builds investing resilience over time
In short, the longer your investment horizon, the higher your probability of success.
Final Thought: Link Long-Term Investing to Your Financial Goals
Investing for the long term is not just about numbers. It’s about achieving your financial goals. Begin with a proper plan and map each SIP to a specific goal. This keeps you focused and prevents knee-jerk decisions when markets dip.
An investment expert can guide you through goal-based investing, step-up SIP planning, and help you review your progress regularly. Stay invested, stay disciplined, and watch the power of time work in your favour.
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