SIP in Volatile Markets
Definition
Market volatility refers to rapid and significant price movements in both directions. SIP in volatile markets is one of the most misunderstood topics. While volatility causes anxiety, it is actually SIP's best friend — the mechanism of Rupee Cost Averaging works hardest during volatile periods, potentially generating superior long-term returns.
In Simple Words
When markets are volatile, your SIP buys units at varying prices — some high, many low. This variation is exactly what makes Rupee Cost Averaging work. Historical data shows that SIPs started during or just before market corrections have generated some of the best long-term returns. The worst thing you can do is stop SIP during volatility.
Real-Life Scenario
Two investors start ₹10,000/month SIP in January 2020 (just before COVID crash): Investor A: Panics during March 2020 crash, stops SIP for 6 months Investor B: Continues SIP through the crash By December 2023: Investor A: Invested ₹4.2L → Value ₹5.8L (38% return) Investor B: Invested ₹4.8L → Value ₹7.6L (58% return) Investor B's SIP bought units at rock-bottom prices in March-May 2020, which multiplied during the recovery. Those few months of "crash investing" accounted for most of the outperformance.
Key Points to Remember
Frequently Asked Questions
Test Your Knowledge
1 questions to check your understanding
How does market volatility affect SIP returns over the long term?
Summary Notes
Embrace volatility — it is the engine that powers Rupee Cost Averaging
Never make SIP decisions based on short-term market movements
Market corrections are buying opportunities for SIP investors
Stay invested through cycles — time in market beats timing the market