Every few years, Indian and global markets experience significant corrections. The Nifty 50 fell 38 percent during the 2020 COVID crash, 60 percent during the 2008 financial crisis, and has seen several 10-20 percent corrections in between. For SIP investors, these periods are not threats — they are opportunities in disguise.
What Happens to Your SIP During a Market Crash
When markets fall, the NAV (Net Asset Value) of your mutual fund drops. This means your fixed monthly SIP amount now buys more units. If you were buying 100 units per month at NAV 50, a 30 percent correction brings the NAV to 35, and your same Rs 5,000 now buys approximately 143 units. When markets recover, these additional units generate significantly higher returns.
Stopping your SIP during a market correction is the single most costly mistake an investor can make. You are essentially stopping your purchases when assets are at their cheapest.
Historical Evidence: SIP Through Corrections
An investor who continued a Rs 10,000 monthly SIP in a Nifty 50 index fund throughout the 2008 crash and the subsequent recovery saw their investments multiply significantly. The units purchased at depressed prices during 2008-2009 generated returns exceeding 300 percent over the next 5 years. Those who stopped their SIP during the crash missed out on accumulating units at rock-bottom prices.
| Scenario | SIP Period | Units Accumulated | Value After Recovery |
|---|---|---|---|
| Continued SIP (through 2008 crash) | 2007-2012 | Significantly Higher | Rs 10.2 Lakh on Rs 6 Lakh invested |
| Stopped SIP (paused 2008-2009) | 2007, 2010-2012 | Much Lower | Rs 6.8 Lakh on Rs 4.8 Lakh invested |
| Continued SIP (through 2020 COVID) | 2018-2023 | Higher | Rs 11.5 Lakh on Rs 6 Lakh invested |
| Stopped SIP (paused Mar-Dec 2020) | 2018-19, 2021-23 | Lower | Rs 8.1 Lakh on Rs 5 Lakh invested |
The Psychology of Staying Invested
The fear of losing money is psychologically twice as powerful as the joy of making money. This is called loss aversion. During a market crash, your portfolio shows red, and every instinct tells you to stop or withdraw. But this emotional response is exactly what leads to poor investment outcomes. The most successful SIP investors are those who automate their investments and do not check their portfolio value during volatile periods.
- Set up auto-debit for your SIP so it continues regardless of market conditions
- Do not check your portfolio value daily during corrections
- Remember that SIP is a long-term commitment of 10, 15, or 20+ years
- Market corrections of 10-20 percent happen almost every year; they are normal
- Major crashes (30-50 percent) have historically been followed by strong recoveries
- Consider increasing your SIP during deep corrections if you have surplus funds
If you have surplus cash during a major market correction, consider topping up your SIP temporarily. Buying more units at lower prices can significantly boost your long-term returns.
What About Timing the Market?
Research consistently shows that time in the market beats timing the market. A study of Nifty 50 returns over 20 years found that missing just the 10 best trading days reduced overall returns by more than 50 percent. Since you cannot predict which days will be the best, staying invested continuously through SIP ensures you capture all the upside.
In the short run, the market is a voting machine, but in the long run, it is a weighing machine. SIP investors who understand this distinction build generational wealth.