Why you shouldn’t stop your SIP when market falls
When stock markets correct sharply, the most common question investors ask is: what really happens to your SIP when market falls by 20% or more?
It’s a natural question. Seeing your portfolio show red for weeks is uncomfortable, and stopping the SIP feels like the safe thing to do. But a SIP behaves very differently from a lump sum when markets fall, and the history of Indian markets shows why that matters.
This post explains what actually happens to your SIP in a falling market, what past crashes looked like for SIP investors, and what to think about before you press “stop”.
What a SIP actually does when markets fall
A SIP invests a fixed amount every month. When the NAV is high, your money buys fewer units. When the NAV falls, the same amount buys more units.
Here is a simple illustration with a ₹5,000 monthly SIP:
| Month | NAV (₹) | Amount invested (₹) | Units bought |
|---|---|---|---|
| 1 | 100 | 5,000 | 50.00 |
| 2 | 90 | 5,000 | 55.56 |
| 3 | 80 | 5,000 | 62.50 |
| 4 | 90 | 5,000 | 55.56 |
| 5 | 100 | 5,000 | 50.00 |
After five months you have invested ₹25,000 and hold about 273.6 units. At a NAV of ₹100, your holding is worth about ₹27,360, a gain, even though the NAV simply came back to where it started. The dip worked in your favour because you kept buying through it.
This is called rupee cost averaging. It doesn’t guarantee a profit, and it doesn’t protect you if a fund keeps falling or never recovers. But it explains why stopping a SIP in the middle of a fall can mean skipping the months when your money would have bought the most units.
Data shows that continuing your SIP when market falls is the most effective way to accumulate more fund units at lower NAVs.
What past market falls looked like
India has seen several sharp falls. Two are worth knowing. The figures below are approximate Nifty 50 index levels, not any one mutual fund.
| Market fall | From (peak) | To (bottom) | Approx. fall | Time to regain the old peak |
|---|---|---|---|---|
| 2008 global financial crisis | ~6,357 (Jan 2008) | ~2,524 (Oct 2008) | ~60% | Several years |
| COVID crash | ~12,400 (Jan 2020) | ~7,511 (24 Mar 2020) | ~38-40% | Roughly 10-12 months |
The two falls were very different. The 2008 fall was deeper and slower, and the recovery took years. The 2020 fall was sharper but much shorter. Nobody could have known in advance which one they were living through.
A 20% fall is not always the bottom
In 2008, the Nifty first dropped 20% below its peak in January, and then went on to fall around 60% in total. This is why “wait for the bottom, then restart my SIP” rarely works in practice: nobody can identify the bottom until it is behind us.
This is also why a SIP is designed the way it is. It does not need you to guess the bottom. It buys at every price along the way, whether the market is rising or falling.
What this means for a SIP investor
In a long fall, your SIP quietly collects more units at lower prices. When the market eventually recovers, those cheaper units are what lift your returns. The ₹5,000 example above shows the mechanism in a small way.
It also means a SIP started just before a major fall will show a loss for a while. That is uncomfortable, and it is exactly when most people feel the urge to stop. Whether stopping was the right call depends on your goal and time horizon, which the checklist below helps you think through.
To see how your own SIP is doing, check your account statement for three things: total units held, average purchase NAV, and the SIP’s XIRR. If you are not sure how to read these, ask me and I will walk you through them.
Honest limits: when a SIP does not help
It wouldn’t be fair to say “never stop your SIP.” Here are real reasons to review it:
- Your goal has changed. If you are close to needing the money (within about 3 years), an equity SIP may no longer be suitable.
- Your income has changed. If a SIP is straining your monthly budget or emergency fund, adjusting the amount is sensible.
- The fund itself is the problem. If a scheme has lagged its category and benchmark for a long time, that is a reason to review the fund, not the idea of investing regularly.
The difference matters: reviewing a SIP for a good reason is fine. Stopping because the market is red and the news is loud is usually a reaction, not a decision.
A short checklist before you stop a SIP
- What is this money for, and when will I need it?
- Has my goal or income changed, or only the market?
- How has this fund done compared with its category and benchmark over 3-5 years?
- Do I have an emergency fund, so I won’t be forced to sell at a bad time?
If you answer these honestly and still feel a change is needed, talk it through before acting.
Want to see this for your own fund?
You can test how a SIP would have behaved in past falls:
- Try the SIP back-test calculator
- Compare two funds side by side
- Talk to me about starting or reviewing your SIP
- I want to initiate my KYC
Remember, staying disciplined with your SIP when market falls is what allows rupee-cost averaging to work in your favor.
Disclaimer: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully. Past performance may or may not be sustained in the future. Index levels shown are approximate and rounded, taken from published market data. They are historical and are not a guarantee or projection of future returns. This article is for educational purposes only and is not personalised investment advice. ARCHANA SHARMA is an AMFI-registered Mutual Fund Distributor, ARN-338632, and earns commission on regular plans. Please consult your distributor or adviser before investing.