A zero average is not a zero return.
Watch what happens to Rs 100 when a gain and an equal loss take turns. Every row averages out to nothing. Not one of them climbs back to 100.
| The swing . up then down |
Simple average |
Rs 100 becomes |
| Up 10 . down 10 | 0 | 99 |
| Up 20 . down 20 | 0 | 96 |
| Up 30 . down 30 | 0 | 91 |
| Up 50 . down 50 | 0 | 75 |
Now give both a real positive average and the same tax runs quietly. A fund that earns a calm 10 then 10 turns Rs 100 into 121. One that jumps 30 then gives back 10, the exact same 10 percent average, ends at 117. Same headline number, the steadier one just kept more. What you actually compound is the average minus a drag, and that drag grows with the size of the swings.