June 23, 2026 | By the Elystar Team

Everyone wants equity-like returns. Far fewer investors ask what drawdowns they must be willing to endure to earn them.

Over the last 20 years, Indian equities have created significant wealth across large-cap, broad-market, mid-cap, and small-cap segments. But those returns came with an important reality: high volatility and, at times, deep drawdowns.

We analyzed the 20-year period from FY 2006-07 to FY 2025-26 to understand the return and risk characteristics of major Indian equity indices.

Return Characteristics

Over this period, different segments of the Indian equity market delivered meaningful long-term returns:

• Nifty 50: CAGR of 9.86%, with a minimum annual return of -36.19% in FY 2009 and a maximum annual return of 73.76% in FY 2010.
• Nifty 500: CAGR of 10.26%, with a minimum annual return of -40.02% in FY 2009 and a maximum annual return of 87.95% in FY 2010.
• Nifty Midcap 50: CAGR of 12.88%, with a minimum annual return of -49.41% in FY 2009 and a maximum annual return of 132.27% in FY 2010.
• Nifty Smallcap 50: CAGR of 9.21%, with a minimum annual return of -58.15% in FY 2009 and a maximum annual return of 129.23% in FY 2010.

One notable pattern is that periods of severe market stress are often followed by strong recovery years.

Major market disruptions typically attract the attention of regulators, policymakers, and market participants, who work to identify underlying issues, restore confidence, and support the functioning of the financial system.

But returns tell only half the story.

Understanding Drawdowns

To understand risk more clearly, we look at Maximum Drawdown (MDD) — the largest decline from a previous peak during a given period.

Drawdown is important because it reflects the real emotional and financial pressure an investor may experience while staying invested.

The drawdown experience across the same indices was significant:

• Nifty 50: Average MDD of -18.49%, with a maximum MDD of -51.72% in FY 2009.
• Nifty 500: Average MDD of -19.51%, with a maximum MDD of -54.05% in FY 2009.
• Nifty Midcap 50: Average MDD of -22.58%, with a maximum MDD of -61.74% in FY 2009.
• Nifty Smallcap 50: Average MDD of -27.51%, with a maximum MDD of -68.00% in FY 2009.

These numbers highlight a critical reality: historically, investors seeking higher returns have often had to accept deeper drawdowns and greater volatility along the way.

This is why evaluating an investment solely on CAGR can be misleading.

The Real Question for Investors

The real question is not simply: “What return can I earn?”

A more important question is: “What level of risk and drawdown am I willing and able to endure?”

The best portfolio is not necessarily the one with the highest return. It is the one whose volatility and drawdowns you can withstand, allowing you to stay invested through market cycles.

Constructing such a portfolio requires understanding your goals, assessing your risk profile, and allocating capital across asset classes in a way that aligns with both your return objectives and your tolerance for risk. Because in investing, staying invested often matters more than chasing the highest return.
 

Disclaimer: This content is intended solely for informational and educational purposes. It does not constitute investment, legal, tax, or financial advice, and should not be construed as a recommendation, offer, or solicitation to buy or sell any security or investment product. This is not an advertisement. While reasonable care has been taken to ensure the accuracy of the information presented, inadvertent errors or omissions may occur. Elystar Investment Management Private Limited shall not be liable for any loss or damage arising from the use of, or reliance on, this content. Past performance is not indicative of future results. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, enlistment with BSE, and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

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