Inflation quietly erodes returns, so a natural question is how often Large Cap funds have outpaced it. This study uses the RBI's CPI upper tolerance band of 6.0% as the yardstick and counts how many historical rolling windows delivered an annualised return above it, for holding periods from 1Y to 10Y.
All figures are lump-sum, point-to-point returns on Direct Growth plans of currently active Large Cap schemes. They describe the past and do not predict the future.
Key Takeaways
- 1Y: 66.02% of windows delivered an annualised return above 6.0%.
- 3Y: 93.65% of windows beat 6.0%; 5Y: 95.96%; 7Y: 99.89%.
- 10Y: 100.0% of windows beat 6.0% in the observed data.
- Spread narrows: the standard deviation of window returns falls from 17.42 at 1Y to 1.73 at 10Y.
- Caveats: survivorship bias applies, windows overlap, and the 10Y sample covers a narrow range of start dates.
The Numbers at a Glance
| Holding period | Windows analysed | Schemes | Beat 6.0% CPI band | Median CAGR | Loss probability |
|---|---|---|---|---|---|
| 1Y | 116,493 | 33 | 66.02% | 11.49% | 16.44% |
| 3Y | 93,372 | 30 | 93.65% | 14.46% | 1.47% |
| 5Y | 72,375 | 27 | 95.96% | 14.02% | 0.16% |
| 7Y | 54,106 | 24 | 99.89% | 13.56% | 0.0% |
| 10Y | 28,952 | 22 | 100.0% | 13.98% | 0.0% |
Each row counts daily rolling windows pooled across that many Direct Growth schemes. For example, the 1Y row is 116,493 daily rolling windows across 33 Direct Growth schemes.
What the 6.0% Yardstick Means
The RBI's flexible inflation targeting framework uses a 4% target with a tolerance of +/- 2%, which puts the upper band at 6.0%. This study checks whether a window's annualised return was above that fixed number. It does not subtract the actual inflation that prevailed in each window, so it is a simple threshold test and not a real-return calculation.
Short Holds: A Wider Range of Outcomes
At 1Y, the middle of the distribution looks healthy: the median window returned 11.49%. But the range is wide. The 5th percentile was -6.09%, the 95th percentile was 50.17%, and the standard deviation was 17.42. The weakest 1Y window returned -37.19% (2019-03-23 to 2020-03-23) and the strongest returned 98.07% (2020-03-23 to 2021-03-23).
With the 25th percentile at 2.9%, a sizeable share of 1Y windows fell below the 6.0% hurdle, which matches the 66.02% beat rate. The 1Y loss probability was 16.44%, and it varied by start year, from 45.18% for 2019 starts to 0.0% for 2020 starts. The data cannot explain why.
Longer Holds: Narrower Outcomes
As the horizon lengthens, the distribution tightens:
| Holding period | 5th percentile | Median | 95th percentile | Std dev |
|---|---|---|---|---|
| 1Y | -6.09% | 11.49% | 50.17% | 17.42 |
| 3Y | 4.71% | 14.46% | 22.69% | 5.31 |
| 5Y | 6.59% | 14.02% | 21.18% | 4.43 |
| 7Y | 9.78% | 13.56% | 16.74% | 2.07 |
| 10Y | 11.13% | 13.98% | 16.79% | 1.73 |
By 5Y, even the 5th percentile (6.59%) sat above 6.0%. At 7Y, the weakest observed window returned 4.21%, which is why the beat rate is 99.89% and not 100.0%. At 10Y, the weakest window returned 8.03%.
The median itself does not climb steadily. It peaked at 14.46% at 3Y and was 13.98% at 10Y. What changes with horizon is mainly how tightly outcomes cluster, not how high the middle sits.
What the Data Cannot Tell You
- Survivorship bias. Only currently active schemes are included; closed or merged schemes are excluded. This can make results look better than the full historical record.
- Limited data window. Windows start no earlier than 2013-01-01, when Direct plans launched. Nothing here speaks to earlier periods.
- Overlapping windows. Daily windows share most of their days with neighbours, so 116,493 windows are not 116,493 independent experiments.
- Narrow 10Y sample. The 10Y windows start between 2013-01-01 and 2016-10-01 only.
- Different scheme counts. The pool shrinks from 33 schemes at 1Y to 22 at 10Y, so the groups are not identical.
- Not tested. Other holding periods and other inflation thresholds were not tested.
- Category label. It reflects the current SEBI classification, and earlier windows use today's membership.
Taxes in Context
The return figures here are NAV-based annualised CAGR and are not adjusted for tax. Per the snapshot's regulatory facts (as of 2026-10-01, Finance (No. 2) Act 2024), long-term capital gains on equity mutual funds held over 1 year are taxed at 12.5% on gains above ₹1.25 lakh per financial year, and short-term gains on holdings up to 1 year are taxed at 20%.
Frequently Asked Questions
How often did Large Cap funds beat 6.0% inflation over 1 year?
In 66.02% of the 116,493 daily 1Y rolling windows across 33 Direct Growth schemes, the annualised return exceeded 6.0%. The median 1Y return was 11.49%.
What happened at longer holding periods?
The share of windows above 6.0% was 93.65% at 3Y, 95.96% at 5Y, 99.89% at 7Y and 100.0% at 10Y in the observed windows.
Did any long-horizon windows lose money?
Loss probability was 1.47% at 3Y and 0.16% at 5Y. It was 0.0% at 7Y and 10Y in the observed windows. These are historical results, and different periods could look different.
Is 6.0% the same as actual inflation?
No. It is the upper end of the RBI's CPI tolerance band, used here as a fixed hurdle. The study does not calculate real returns against the inflation that occurred in each window.
Do these figures include tax?
No. They are NAV-based annualised CAGR. The snapshot notes that long-term gains on equity mutual funds held over 1 year are taxed at 12.5% on gains above ₹1.25 lakh per financial year, and short-term gains are taxed at 20%.
How reliable is the data?
The dataset is internally validated, but it covers only currently active schemes from 2013-01-01 onward, so survivorship bias applies and past performance is not indicative of future results.
This is educational content, not investment advice; consult a SEBI-registered investment adviser.