Historical Trends in Nifty 50 Returns
This data from StableInvestor.com provides a fascinating look at the 5-year compounded annual growth rate (CAGR) for Nifty 50, Mid Cap 150, and Small Cap 250 from April 2005 to 2025. The Nifty 50 index, represented by the gray line, has shown a minimum 5-year CAGR of -2% and a maximum of 22%. This means that even if an investor had invested a lump sum at the worst possible time, the worst-case scenario over a 5-year period would have been a flat or slightly negative return. On the other hand, the best-case scenario could have given a 22% CAGR, which is quite strong. The current 5-year CAGR sits at around 13.89%, which is close to its historical average.
Mid Cap 150: Higher Risk, Higher Reward
The mid-cap index (blue line) has historically performed better than Nifty 50 but comes with slightly more risk. The minimum 5-year CAGR for mid-caps has been -4%, meaning that in the worst case, an investor might have faced a small loss. However, the upside has been much greater, with a maximum CAGR of 31%. Currently, the mid-cap index is showing a 5-year CAGR of 23%, which is higher than its long-term average. This suggests that mid-caps have delivered strong returns in recent years, but investors should also be aware of the volatility they bring.
Small Cap 250: Higher Volatility, Greater Gains
Small-cap stocks (orange line) have provided the highest returns historically, with a maximum 5-year CAGR of 32%. However, they also come with the highest downside risk. The worst 5-year CAGR recorded was -8%, showing that small caps can go through deep drawdowns before recovering. At present, the small-cap index has a 5-year CAGR of 24%, indicating a strong phase, but also highlighting the risk of potential corrections in the future.
Avoiding FOMO and Managing Risk with SIPs
One key takeaway from this data is that investing at market peaks can lead to disappointing returns. Many investors deploy large lump sums at the wrong time, often due to fear of missing out (FOMO). However, even in the worst cases, the 5-year CAGR for all three indices has not been drastically negative. To reduce the risk of timing the market poorly, investors should prefer systematic investment plans (SIPs) or gradual investment approaches instead of lump-sum investments. SIPs help spread the investment over time, reducing the impact of market volatility.
The Importance of a 5-Year Horizon
The data clearly shows that investors who stay in the market for at least five years have a high probability of seeing positive returns. While there can be short-term fluctuations, the likelihood of making losses significantly reduces over a longer holding period. Instead of focusing on short-term market movements, investors should concentrate on their long-term strategy and avoid panic-selling during market corrections.
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