Investing · 5 min read
What Happens to Your SIP
When the Market Falls?
Your SIP buys more units for the same money. That is the whole point of investing monthly, and stopping now is the most expensive mistake an investor can make.
Ravinder Pal Singh Ubeja ·
When the market falls, the value of what you already own drops, but every new SIP instalment buys more units at the lower price. Investors who keep going through a fall usually end up with a lower average cost. Investors who stop lock in the loss and miss the recovery.
What actually happens to the numbers
Say you invest ₹10,000 a month. In the first month the fund's NAV is ₹100, so you get 100 units. The market falls and next month the NAV is ₹80: the same ₹10,000 now buys 125 units. The month after, it recovers to ₹100 and you get 100 units again.
You invested ₹30,000 and own 325 units, an average cost of about ₹92 per unit, below the starting price. The fall did not hurt the units you bought during it. It made them cheaper. This is called rupee cost averaging, and it only works if the SIP keeps running.
Why stopping is the expensive mistake
Indian markets have fallen sharply many times: in 2008 the Sensex lost more than half its value, and in early 2020 it fell by more than a third in a few weeks. Both times, investors who stopped their SIPs sold or paused near the bottom and missed the cheapest units of the cycle. Those who continued were buying when prices were lowest.
Past falls and recoveries do not guarantee future ones, and no one can tell how long a fall will last. That is exactly why a fixed monthly SIP helps: it removes the need to guess.
What to do in a fall
- Keep the SIP running. Pausing is allowed, but it means you stop buying at lower prices.
- Do not judge the plan on one bad year. Equity SIPs are meant for goals five or more years away.
- Top up if you can. If you have spare money and a long horizon, a fall is a reasonable time to add a lump sum or raise the SIP.
- Check your emergency fund. Most panic selling happens because people need the money. Keep six months of expenses outside equity so you never have to sell in a fall.
When a fall does mean something should change
If a fall makes you want to stop, the plan may have been too aggressive for you, or the goal may be closer than the investment's horizon. The fix is to rebalance the allocation, ideally after the market has steadied, not to stop investing. Money needed within two or three years should already be moving into debt funds.
If you are worried about your SIPs right now, talk to us before you stop anything. We will look at your goals and timeline and tell you plainly whether anything needs to change.