Why your SIP works hardest when markets fall

When markets fall, many investors pause their SIPs to "wait for things to settle". It feels prudent, but it switches off the very mechanism that makes SIPs work.

A three-month example

Say you invest ₹10,000 a month in a fund.

• Month 1: the NAV is ₹100, so you buy 100 units.
• Month 2: the market falls and the NAV is ₹80, so the same ₹10,000 buys 125 units.
• Month 3: the NAV recovers to ₹100, and you buy 100 units.

You invested ₹30,000 and own 325 units. Your average cost is ₹92.31 a unit, lower than the average NAV of ₹93.33. When the NAV is back at ₹100, your units are worth ₹32,500, even though the price only returned to where it started. The month the market fell did the heavy lifting.

What stopping would have cost

Pause in month 2 and you skip the cheapest units. Over many years and several corrections, those skipped months add up to a noticeably smaller corpus.

Habits that help

• Link each SIP to a goal and a time frame, so short-term falls do not change the plan.
• Increase your SIP each year as your income grows. Even a 10% step-up makes a large difference over time.
• Keep an emergency fund of about six months' spends, so you never have to stop or redeem in a bad month.
• Review once a year, not every time the market moves.

Averaging does not guarantee a profit or protect against losses in a falling market, but over long periods it removes the pressure of trying to time your entry.