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Why You Should Never Stop SIPs When Market Goes Down | Investment Guide

Why You Should Never Stop Your SIPs When the Market Goes Down

Picture this: You’ve been diligently investing ₹5,000 every month in a mutual fund SIP. Then suddenly, the market crashes. Your portfolio shows red. Panic sets in. Your finger hovers over the “Stop SIP” button. Before you click, read this. That single decision could cost you lakhs in potential wealth over the next decade.

Market downturns are inevitable. They’re part of the investing journey. Yet, when they happen, fear takes over and many investors make the biggest mistake of their investment life by stopping their Systematic Investment Plans.

This comprehensive guide will explain why continuing your SIPs during market downturns is not just wise but essential for building long-term wealth. More importantly, we’ll show you why increasing your investments during market crashes could be the smartest financial decision you ever make.

Understanding the Psychology of Market Downturns

When markets fall, our primal instincts kick in. We see our hard-earned money seemingly disappearing. The news channels scream crisis. Friends and family share horror stories. The natural human response is to stop the bleeding and preserve what’s left.

But here’s the truth that separates successful investors from the rest: market downturns are temporary, but the impact of stopping your SIPs can be permanent.

            Historical Fact: Every single market crash in history, including the 2008 Global Financial Crisis, the 2020 COVID-19 crash, and numerous others, has eventually recovered and reached new highs. Those who stayed invested not only recovered their losses but created significant wealth.
        

The Power of Rupee Cost Averaging

Rupee cost averaging is the secret weapon of SIP investors, and it works best during market downturns. Here’s how it works in simple terms:

When markets are high, your fixed SIP amount buys fewer units. When markets fall, the same amount buys more units. Over time, this averages out your purchase cost, reducing the overall cost per unit significantly.

Let’s understand this with a real example. Suppose you invest ₹10,000 monthly:

Month 1: NAV is ₹100, you buy 100 units
Month 2: Market falls, NAV is ₹80, you buy 125 units
Month 3: Market falls further, NAV is ₹60, you buy 166.67 units
Month 4: Market recovers to ₹80, you buy 125 units

Your average cost per unit is ₹77.67, much lower than if you had invested a lump sum at ₹100. When the market eventually recovers to ₹100 or beyond, you’re sitting on substantial profits because you bought more units when prices were low.

The investor who stops SIPs during downturns misses out on buying units at discounted prices. This is like refusing to buy your favorite products during a sale!

Why Stopping SIPs is a Costly Mistake

Loss of Compounding Benefits

Albert Einstein reportedly called compound interest the eighth wonder of the world. When you stop your SIPs, you break the compounding chain. Every month you pause is a month of potential returns you’ll never get back.

Even a six-month pause during a market downturn can cost you lakhs over a 20-year investment horizon. The money you didn’t invest during the downturn won’t benefit from the subsequent recovery and growth.

Missing the Best Days in the Market

Research consistently shows that the best days in the stock market often come immediately after the worst days. If you stop your SIP during a downturn, you risk missing these recovery rallies.

Studies have found that missing just the 10 best days in the market over a 20-year period can reduce your returns by more than 50 percent. These best days often occur during volatile periods when fear is at its peak.

Market Timing is Nearly Impossible

When you stop your SIP, you face two impossible decisions: when to stop and when to restart. Even professional fund managers with teams of analysts struggle with market timing. For individual investors, it’s a game you’re statistically likely to lose.

By the time you feel confident enough to restart your SIP, the market has often already recovered significantly. You end up stopping at low prices and restarting at high prices, exactly the opposite of what you should do.

Why You Should Actually Increase Investments During Market Downturns

If continuing your SIPs during downturns is good, increasing them is even better. Here’s why:

Maximum Units at Minimum Cost

Market downturns offer a once-in-a-few-years opportunity to buy quality assets at discount prices. When fundamentally strong companies see their stock prices fall due to market panic rather than business problems, it’s like a clearance sale on wealth creation.

By increasing your SIP amount during downturns, you accumulate significantly more units. When the market recovers, these additional units translate directly into higher returns.

Warren Buffett’s famous advice: “Be fearful when others are greedy, and greedy when others are fearful.” Market downturns are when others are fearful, making it the perfect time to be greedy with your investments.

Lower Average Purchase Cost

Increasing SIPs during downturns significantly reduces your average cost per unit. Even if you increase your SIP by just 20 to 30 percent during a market crash, the long-term impact on your portfolio can be substantial.

Psychological Advantage

Increasing investments during downturns requires discipline and long-term thinking. It goes against our natural instincts but builds the investor mindset necessary for wealth creation. This psychological shift from fear to opportunity is what separates great investors from average ones.

Practical Strategies for Market Downturns

Maintain an Emergency Fund

Before you invest, ensure you have three to six months of expenses in an emergency fund. This ensures you won’t need to stop your SIPs due to temporary financial stress during market downturns.

Step-Up SIPs

Set up step-up SIPs that automatically increase your investment amount by 10 to 15 percent annually. This ensures you’re naturally investing more over time, including during potential downturns.

The 80-20 Rule

If you’re worried about market downturns, keep 80 percent of your regular SIPs running no matter what. Use the remaining 20 percent to increase investments during major market corrections of 20 percent or more.

Focus on Quality Funds

Invest in funds with proven long-term track records, experienced fund managers, and sound investment philosophies. Quality funds are more likely to recover and thrive after downturns.

Important: This advice applies to equity mutual funds and long-term investments. Short-term traders and those needing money within three years should have different strategies.

Real-World Success Stories

Investors who continued their SIPs through the 2008 financial crisis, when markets fell by over 50 percent, saw their portfolios multiply several times over the next decade. Those who stopped investing during that period missed out on buying at once-in-a-lifetime low prices.

Similarly, during the March 2020 COVID-19 crash, when markets fell 40 percent in a month, investors who increased their SIPs or stayed invested saw remarkable returns as markets recovered to new highs within months.

These aren’t exceptions but the rule. Every major downturn in history has been followed by even stronger recoveries for those who stayed the course.

The Mathematics of Patience

Let’s look at actual numbers. Assume two investors, both starting with ₹10,000 monthly SIPs:

Investor A: Continues SIP through a 30 percent market downturn that lasts 12 months. Total invested during downturn: ₹1,20,000. Units accumulated at lower prices: significantly higher.

Investor B: Stops SIP during the same 12-month downturn. Total invested: ₹0. Units accumulated: 0.

When the market recovers to previous levels over the next year and continues growing, Investor A’s portfolio will be substantially larger. Over 15 to 20 years, this difference compounds into several lakhs of rupees in additional wealth.

Overcoming Fear and Building Discipline

The key to successful SIP investing isn’t intelligence or market knowledge. It’s discipline and emotional control. Market downturns test these qualities like nothing else.

Remember that volatility is the price you pay for equity returns. If you want fixed deposit-like stability, you’ll get fixed deposit-like returns. If you want wealth-creating returns, you must embrace volatility as a friend, not an enemy.

Create an investment policy statement for yourself. Write down your goals, time horizon, and commitment to staying invested regardless of market conditions. Review this whenever fear tempts you to stop your SIPs.

The Bottom Line: Market downturns are not threats to your wealth; they’re opportunities. Continuing your SIPs during downturns is good. Increasing them is even better. The investors who build real wealth are those who buy when others are selling and stay calm when others are panicking.

Frequently Asked Questions (FAQ)

Q1: How much should the market fall before I consider increasing my SIP?

A correction of 10 to 15 percent is normal market behavior. Consider increasing your SIP when markets fall by 20 percent or more from recent highs. During extreme crashes of 30 percent or more, if you have spare funds, increasing by 50 to 100 percent can significantly boost long-term returns.

Q2: What if the market keeps falling after I increase my SIP?

This is actually good news. Every additional fall means you’re buying more units at even lower prices. Remember, you’re investing for 10, 15, or 20 years, not for next month. Short-term fluctuations don’t matter; long-term wealth creation does.

Q3: Should I stop SIPs if I need money urgently?

If you face a genuine emergency, it’s acceptable to pause SIPs temporarily. However, don’t redeem your existing investments during a downturn if possible. Instead, use your emergency fund or other savings. Restart SIPs as soon as your situation stabilizes.

Q4: How long do market downturns typically last?

Market corrections usually last from a few months to two years. Severe bear markets might take longer to recover, but historically, all major downturns have eventually reversed. The key is having a time horizon of at least five to seven years for equity investments.

Q5: Is it better to invest a lump sum during a crash or increase SIP?

If you have a large corpus available, you can do both. Continue your regular SIP and invest a portion of the lump sum. However, consider spreading the lump sum over three to six months using systematic transfer plans (STP) to benefit from further potential falls while reducing timing risk.

Q6: Should I follow the same strategy for debt funds?

This strategy primarily applies to equity funds. Debt funds have different risk-return dynamics. However, the principle of continuing SIPs during volatility applies to debt funds as well, though the impact is less dramatic than with equity.

Q7: What if I started my SIP just before a market crash?

This is actually one of the best scenarios. You’ll accumulate units at lower prices right from the start, significantly reducing your average cost. When markets recover, your returns will be higher than someone who started during a market peak.

Q8: Can I time the market bottom to invest more?

No one can consistently time the exact market bottom. Instead of trying to catch the perfect bottom, focus on investing more whenever markets have fallen significantly. Even if markets fall further, you’re still buying at better prices than before the downturn.

Q9: How do I know if a fund is worth continuing during downturns?

Check if the fund has a consistent long-term track record (five-plus years), experienced fund management, and hasn’t changed its investment philosophy. If the fund is falling in line with the market rather than due to specific problems, continue your SIP. If there are fundamental issues with the fund itself, that’s different from a market downturn.

Q10: What percentage of my salary should I invest in SIPs?

A good rule of thumb is 15 to 20 percent of your monthly income for long-term wealth creation. Start with what you’re comfortable with and gradually increase. During market downturns, if you have spare cash, you can temporarily increase this percentage to capitalize on lower prices.

Remember: The stock market is a device for transferring money from the impatient to the patient. Be patient, stay disciplined, and let time and compounding work their magic on your investments.

Don’t Stop Your SIP When Markets Crash: Why This Costly Mistake Could Rob You of Lakhs