Why You Should Never Stop Your SIP in a Falling Market?
Summary
Stopping your SIP during market downturns can cost more than it saves. Falling markets reduce asset prices, letting you accumulate more units at lower NAVs. SIPs benefit from rupee-cost averaging, uninterrupted compounding, and reduced timing risks. Emotional reactions often lead to missed opportunities, while disciplined investing ensures long-term wealth building. Guidance from a mutual fund distributor helps maintain focus and avoid panic decisions. Staying invested through volatility strengthens the potential for recovery and investor confidence over time.
Introduction
Before we start this blog, let’s dive into a scenario. Imagine last month, the market experienced a downturn, and your mutual fund investment portfolio has turned "red", reflecting a drop in value.
It is in these times of extreme market volatility that an investor typically begins to panic. Stopping your SIP (systematic investment plan) appears to be a way of sheltering your remaining assets or to limit the degree of damage incurred in such a volatile market environment.
This emotional response is justified, and it makes sense to ask the question: "Why would I continue to invest when my MF portfolio is losing money, and why would I continue to invest in this downward-sloping market?" or "Why not wait until the market stabilises?"
The truth is, stopping your Mutual Fund SIP in such times can be quite costly over the long term. The markets are designed to experience "up-and-down fluctuations" over time and this "down" movement is not an indication of future risk or potential loss; rather, it is an integral part of a market’s normal behaviour.
SIPs are developed specifically to address the uncertainty of a volatile market and they are at their best during these uncertain times, as these are the times when the true value of their design becomes evident.
Let’s decode this.
When the market declines in value, it results in lower asset prices. The lower-priced assets today represent a great opportunity for those who hold such assets tomorrow. However, most investors fail to see this opportunity until it is too late to take advantage of it. By pausing your SIP, you will disrupt your long-term strategy and break both the consistency and momentum of your overall investment approach. This disruption will cause damage to your overall investment strategy over time, but will occur without you even realising it.
During these periods, it becomes extremely important to seek guidance on your long-term strategy. A mutual fund distributor can provide you with guidance on keeping your investments in proper alignment and protecting you from making costly mistakes.
Let’s analyse why continuing with your SIP is important, and the negative impact of stopping your SIP.
How does SIP work in a downward market?
Let’s now understand what makes SIP work best specially when the market gets volatile and moves downwards:
1. More units purchased at lower prices
Market fluctuations lead to reductions in mutual fund NAV (Net Asset Value). During such phases, your fixed SIP amount—for example, ₹5,000 purchases more units because prices are lower.
For instance, at an NAV of ₹100, a ₹5,000 SIP would purchase 50 units. If the NAV falls to ₹80, the same ₹5,000 investment buys 62.5 units—an additional 12.5 units at no extra cost. This additional unit accumulation will also lead to an increase in ownership of that mutual fund and therefore, as the market recovers the investor's stake in that fund will increase by these additional 12.5 units. The investor will be greatly rewarded for his or her patience as the NAV returns to ₹100.
Disclaimer: The figures/projections are for illustrative purposes only. The situations/results may or may not materialise in future.
History shows us that markets have always rebounded after periods of decline (the markets fell in 2008 and recovered within three years; the markets fell due to the Covid-19 pandemic in 2020 and recovered in only a couple of months). The key to capitalising on these recoveries is to continue to invest while the market is at low prices; this is when the greatest amount of units will be accumulated. Investors who continued to invest while the NAVs were declining were able to build large amounts of units during these periods and may reap the greatest rewards during the recovery periods. Investors who ceased to invest during the low price period to protect their capital from loss missed out on opportunities that would have resulted from the large accumulation of units at low prices.
2. Cost Averaging Increases MF Portfolio Efficiency
Market prices hardly ever rise or fall in a straight line; they are constantly changing directions. SIPs average the purchasing price through ups and downs in the market cycles. Your average purchase price is neither a high price nor a low price. And hence, they help you regain Total Stress-Free Investing.
Everyone is exhausted from trying to "play the market." To "buy low" seems theoretically easy, but it is near impossible to predict the actual low of the stock prices. Through the use of SIPs, this guessing game is completely eliminated. You invest without regard to market conditions. The process of SIP will optimise your investment for you, so you do not need to worry about whether you are buying at a high or low price.
3. Compounding Continues Without Interruption
Compounding is dependent upon uninterrupted periods of time to be effective. Compounding creates an exponential effect through the growth of one year upon the previous year and generating further returns by the returns generated.
A broken cycle of time weakens compounding. Even short-term breaks will produce diminished results. Hence an uninterrupted series helps in producing greater compounding results.
It is to be remembered that loss of time cannot be recovered.
There is no way to recover this loss by starting to invest at a later time; that window has already closed. In short, any compounding opportunity you had over the course of the twelve months is permanently lost, and you cannot expect to replace that loss with future returns.
4. You Avoid Late Re-Entry Risk
Most investors seek stability in the markets before committing an SIP investment. They need to see confirmation that the market has recovered before they are willing to invest again. When investors finally get this assurance, markets have generally increased in value considerably, with net asset values already below where they would have continued to invest.
Therefore, the cost of re-entering the market now is much higher. If you wait for confirmation of stability before investing, you will miss out on potential opportunities. Existing investors are rewarded with greater returns than late investors. With SIPs, this timing risk is eliminated altogether. You do not enter or exit the market; you continue to invest in a systematic way. As a result, timing mistakes will not be made.
5. Maintaining Control Over Your Emotions
When you see losses in your investment accounts, it causes you to be anxious, or have real anxiety. A negative return has a greater negative impact on us, than a positive return gives us positive feelings. This is our psychology while investing.
When you invest in SIPs, there are no emotional factors involved in the process. It is a systematic process you are following regardless of your emotions. You have built the discipline into the structure of your investments. Having this type of behavioural discipline has a significant impact on investment returns. Emotions are responsible for destroying more wealth than poor fund choices. SIPs save you from yourself.
6. Investor Discipline Strengthens Over Time
Repeated volatility results in multiple tests of your patience as a long-term mutual fund investor. The market will again crash, and therefore, your discipline will again be tested.
Each successive cycle of successful investing builds upon your level of trust in the process. You become less afraid of future volatility because of the experience you have had. Continued investment develops the discipline of continued investment indefinitely because you have shown yourself that you can be successful through difficult circumstances. Each successful challenge builds on your level of confidence, and your resilience becomes your superpower as an investor.
The Guidance of a Professional-Enabling You to Make Better Decisions
Guidance from a dedicated mutual fund distributor can assist you in making better-informed decisions or choices that are more suitable for your needs. They can assist you in remaining level-headed when the stock market is volatile. They will separate your emotions from your rational decisions. They can help you determine which SIPs you should maintain and can help you to align your investments with your long-term objectives. A mutual fund distributor ensures that you avoid making regrettable, impulsive investments based on panic.
With the help of a professional, you always remain disciplined and confident in your investment strategy.
Conclusion
Short-term market fluctuations don't affect long term outcomes. It is the discipline and guidance that is needed the most to get through short-term volatility for the long-lasting outcomes. Through each recovery period, there are rewards for staying disciplined and committed to consistency. There is one common trait that successful investors share - They have remained invested through all market cycles. They have remained under the guidance of professionals. They trusted the investing process.
Remember an individual SIP (Systematic Investment Plan) is not simply a monthly transaction; it is a commitment to your future. So, continue your SIP, no matter what the general sentiment is, and have faith that the averaging mechanism will be working to your benefit. You will eventually thank yourself for remaining invested when others have quit.
Mutual Fund investments are subject to market risk, Read all scheme-related documents carefully.
FAQ’s
1) What is a SIP and how does it work?
A Systematic Investment Plan (SIP) allows regular investments in mutual funds. It buys more units when prices are low and fewer when prices are high, averaging your cost over time.
2) Should I stop my SIP when the market falls?
No. Stopping can disrupt compounding, reduce unit accumulation, and increase timing risk. Market downturns are opportunities for disciplined investors.
3)How does rupee-cost averaging help during market declines?
It reduces the average purchase cost of units by buying more when the NAV is low. This strategy balances performance when markets recover.
4) Can short-term volatility affect long-term SIP returns?
Short-term volatility is normal. Long-term SIPs benefit from compounding and market recovery, which generally outweigh temporary declines.
5) How does SIP protect against emotional investing?
SIPs automate investments, preventing panic-based decisions. Investors continue buying regularly without trying to time the market.
6) Why is professional guidance important for SIP investors?
Mutual fund distributors help separate emotions from decisions, suggest suitable investments, and maintain consistent strategies during volatility.
7) What happens if I pause my SIP during a market dip?
Pausing reduces unit accumulation, interrupts compounding, and increases the risk of entering the market at higher prices later.
8) How long should I continue my SIP to benefit fully?
SIPs work best over the long term, typically 10-15 years or more, allowing compounding and cost averaging to optimise returns.
9) Do market recoveries reward consistent SIP investors?
Yes. Historical trends show investors who stayed invested during downturns accumulate more units and benefit from recoveries.
10) Can SIPs reduce the stress of investing?
Absolutely. Automated investments remove the guesswork of timing markets, letting investors focus on regular, disciplined investing without anxiety.