Systematic Investment Plans (SIPs) remain a steadfast method for maintaining investment discipline, crucial during market downturns. Recent data reveals a 14.6% decline in the Nifty50 index from its peak in September 2024 to March 2025, yet SIP closures have surged.
Despite this, SIPs encourage disciplined investing, preventing unnecessary spending while fostering long-term financial benefits. By consistently investing, individuals can take advantage of rupee cost averaging, purchasing more units when prices are low, thereby reducing the overall acquisition cost. This strategy proves beneficial as markets are cyclical and likely to recover over time.
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"SIPs work on the principle of Rupee Cost Averaging. When markets fall, your SIP buys more units at lower prices. This reduces your average cost per unit. Later, when markets rise, the cheaper units you bought during the downturn give higher returns, improving your overall gains. In simple terms, you buy fewer units when prices are high and more when prices are low. Over time, this helps balance out the costs and improves your long-term performance—especially in a volatile market. You should continue your SIPs even when the market is low because staying invested helps you benefit in the long run," said Hrishikesh Palve, Director, Anand Rathi WealthLimited.
Market corrections, such as the recent downturn, often prompt investors to reconsider their strategies. However, SIPs' inherent advantage lies in cost averaging. When the market dips, investors acquire more units, thus positioning themselves for potential gains in future upswings. The Nifty 500 and other indices have seen similar declines, underscoring the cyclical nature of the market.
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Why is it detrimental to stop your SIPs during market downturns
Nifty 50 - TRI SIP XIRR Analysis
| First 1 Year SIP XIRR | % of Times | Avg. First 1 Year SIP XIRR (%) | Next 4 Years – 5 Yr Avg. SIP XIRR (%) |
|---|---|---|---|
| Less than 0% | 22% | -18.27% | 12.47% |
Total number of observations: 180 (from April 2005 till February 2025)
"As we can see from the observation above, in 22% of the cases where someone had invested in an SIP in the Nifty 50 Index for one year and made negative return of less than -10% and would have booked a loss. However, holding that investment for another five years would have turned that loss into a positive return of 12.47%. This emphasises a fact that most often panic exiting leads to unnecessary loss booking which otherwise could have been better handled with patience. Therefore, investors should avoid panicking and exiting their SIPs when markets are down. Build a strategy so that you can build a long term portfolio which can help you to ride smoothly through markets volatilities," Palve added.
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Contrasting trends
Despite the advantages, SIP account closures have increased. The monthly inflows in mutual fund SIPs decreased slightly by approximately 0.28% in March, totaling Rs 25,926 crore compared to Rs 25,999 crore in February. The number of new SIP registrations in March 2025 was 40.18 lakh, down from 44.56 lakh in February.
In March, the total number of contributing SIP accounts was 8.11 crore, slightly lower than the 8.26 crore recorded in February. The SIP Asset Under Management (AUM) for March 2025 is Rs 13.35 lakh crore, an increase from Rs 12.37 lakh crore in February.
The rise in closures might also signal an emotional response to market volatility rather than a strategic decision based on financial principles. Maintaining an SIP during downturns can ultimately lead to acquiring more units at lower prices, positioning the portfolio for growth once the market rebounds.
In bull markets, while fewer units are purchased, the portfolio value tends to rise due to elevated prices, demonstrating the value of holding through volatile periods. By maintaining SIPs, investors capitalise on both market lows and highs, smoothing out returns over time. The market correction is attributed to cyclical issues rather than fundamental economic problems, suggesting optimism for future growth.
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Therefore, discontinuing SIPs in response to market dips contradicts their purpose. SIPs are designed for long-term wealth creation, offering a reliable investment strategy that mitigates the emotional rollercoaster of market fluctuations.
