5 and 7 years Nifty50 Returns (Detailed Analysis 2021 with 8000+ data points)

What happens when you invest in Nifty50 and stay invested for 5 years?

What happens when you invest in Nifty50 and stay invested for 7 years?

For most people, the definition of long term is around 5 to 7 years. So what happens when you invest in the index Nifty50 for 5 to 7 years? How much returns can you get if your holding period is 5 to 7 years?

I did some number crunching to answer this simple question. The answers are based on the historical data from 1st July 1999 to 23rd August 2021. So that’s almost 22 years.

So let’s see…

Invest lumpsum in Nifty50 for 5 years

We have a total of 4402 data points where a period of 5-year was available. This means that period from 1-Jan-1999 to 31-Dec-2003 is one period of 5 years. 4-Jan-1999 to 5-Jan-2004 is the second 5-year period and so on. The last 5-year period under consideration for the analysis was 24-Aug-2016 to 23-Aug-2021.

Here are a few of the findings. Please spend some time reading the table below and then proceed further:

5-Year Nifty Return Analysis

The table above is self-explanatory but still, here are few pointers for better understanding and how to read the table:

  • Negative returns were delivered for only 1.1% of the time.
  • Returns below 8% (which is a sort of minimum return that we have in mind as risk-free number) were delivered 28.1% of the time.
  • Returns above 8% were delivered 70.8% of the time.
  • Returns from 0-5% were delivered 12.0% of the time.
  • Returns from 5-8% were delivered 16.1% of the time.
  • Returns from 8-12% were delivered for 23.5% of the time.
  • Returns from 12-15% were delivered 16.5% of the time.
  • Returns from 15-21% were delivered 12.4% of the time.
  • Returns from 21-27% were delivered 7.7% of the time.
  • Returns from 27-35% were delivered 6.2% of the time.
  • Returns from 35-45% were delivered 4.5% of the time.
  • The minimum 5-year return generated is -2.3% CAGR.
  • The maximum 5-year return generated is +45.0% CAGR!

That was about the 5-year holding period. Now let’s see the 7-year holding periods.

Invest lumpsum in Nifty50 for 7 years

We have a total of 3911 data points where a period of 7-year was available. This means that period from 1-Jan-1999 to 30-Dec-2005 is one period of 5 years. 4-Jan-1999 to 2-Jan-2006 is second 5-year period and so on. The last 5-year period under consideration for the analysis was 25-Aug-2014 to 23-Aug-2021.

Here are few of the findings. Please spend some time reading the table below and then proceed further:

7-Year Nifty Return Analysis

The table above is self-explanatory but still, here are few pointers for better understanding and how to read the table:

  • There were NO negative return 7-year periods!
  • Returns below 8% (which is a sort of minimum return that we have in mind as a risk-free number) were delivered 13.1% of the time.
  • Returns above 8% were delivered 86.9% of the time.
  • Returns from 0-5% were delivered 0.9% of the time.
  • Returns from 5-8% were delivered 12.2% of the time.
  • Returns from 8-12% were delivered 35% of the time.
  • Returns from 12-15% were delivered 18.6% of the time.
  • Returns from 15-18% were delivered 11.6% of the time.
  • Returns from 18-21% were delivered 5.9% of the time.
  • Returns from 21-24% were delivered 7.3% of the time.
  • Above 24% returns were delivered 8.6% of the time.
  • The minimum 5-year return generated is +3.7% CAGR.
  • The maximum 5-year return generated is +28.4% CAGR!

The above requires no further explanation in my view. But just to summarize, if you remain invested for long enough, the probability of generating inflation-beating returns from equity increases. This is not a guarantee. But still, it can be said with 80-90% probability if not full 100%.

The above returns are CAGR returns and do have the issue that is to be expected for average calculations (read more here). So the journey will be volatile with ups and downs. You have to live with it if you want returns greater than inflation or risk-free products.

Also, the CAGR return figures here are pre-tax. So if we include 10% LTCG taxation, then the returns will reduce a bit. Few examples:

  • Suppose you invested Rs 10 lakh in Nifty50 on 30-Jan-2014 (Nifty at 6073) and remained invested for a 7-year period, i.e. till 28-Jan-2021 (Nifty at 13,817), then the value of your Rs 10 lakh would have grown to Rs 22.74 lakh. This is a pre-tax CAGR of 12.5%. But if we adjust for long term capital gains tax of 10% on gains above Rs 1 lakh (i.e. Rs 22.74 lakh – Rs 10 lakh = Rs 12.74 lakh CG – Rs 1 lakh deduction = Rs 11.74 lakh), then the post-tax CAGR will come down to 11.6%.
  • Suppose you invested Rs 2 lakh in Nifty50 on 30-Jan-2014 (Nifty at 6073) and remained invested for a 7-year period, i.e. till 28-Jan-2021 (Nifty at 13,817), then the value of your Rs 2 lakh would have grown to Rs 4.54 lakh. This is a pre-tax CAGR of 12.5%. But if we adjust for long term capital gains tax of 10% on gains above Rs 1 lakh (i.e. Rs 4.54 lakh – Rs 2 lakh = Rs 2.54 lakh CG – Rs 1 lakh deduction = Rs 1.54 lakh), then the post-tax CAGR will come down to 11.9%.

Further Reading (Interesting one!) – Does a 5-year return give a hint at future 2-year returns?

So that was about how your Nifty investments fare if you have a holding period of 5 to 7 years. I hope you found this analysis useful. It’s pretty basic, to be honest, but does send out a very strong message. I hope you got the message right. 😉

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