If you are an Indian mutual fund investor who uses Systematic Investment Plans (SIPs), this story will feel painfully familiar. You begin with immense enthusiasm, inspired by charts showing the power of compounding and the long-term growth of the Sensex. You make a firm commitment to continue your SIP for 15 years or more.
The All-Too-Common SIP Sabotage Pattern
Initially, everything goes smoothly. Markets rise, your investment app shows green returns, and you feel like a financial genius. Then, the inevitable happens: markets start correcting. Your healthy returns of +18% shrink to +9%. You feel uneasy but stay put. Then they dwindle to +2%, and suddenly plunge to -5%. The same SIP that made you feel smart now makes you question your intelligence.
This is when the destructive thought creeps in: "Why am I throwing good money after bad? I'll pause this SIP and restart when the situation improves." The fatal flaw? By the time the market "looks better," it has already recovered significantly. You end up restarting your investments near a peak, only to repeat the cycle during the next downturn. If this pattern resonates with you, you are not alone—you are a normal investor quietly undermining your own financial plan.
The Real Job of a SIP: Buying More When Markets Are Down
The fundamental purpose of a SIP is often misunderstood. A SIP does not guarantee profits. Its core function is to enforce financial discipline by automating the process of buying more units when prices are low and fewer units when prices are high. This mechanism, known as rupee cost averaging, only works if you allow it to operate precisely when it feels most uncomfortable—during market falls.
Dhirendra Kumar, Founder and CEO of Value Research, emphasizes this point. Analysis at Value Research consistently shows a boring yet brutal pattern. Investors who continue their SIPs through a crash invariably end up with a larger number of units at a lower average cost, building a significantly bigger corpus over the subsequent years. In contrast, the investor who pauses, waiting for clarity or stability, commits the financial equivalent of buying an umbrella after the monsoon has ended.
The Psychology Behind the Mistake: Loss Aversion
Why do we make this error even when we intellectually know it's wrong? Behavioral economics provides a clear answer: loss aversion. We feel the pain of a loss much more acutely than the pleasure from an equivalent gain. A 10% portfolio decline hurts more than a 10% rise delights us. When your screen turns red, your brain's instinct is to stop the pain. Halting the SIP feels like a sensible, proactive step, when in reality, you are merely locking in your discomfort and forfeiting the future benefit of buying at lower prices.
We also fail to recognize that the money invested during a downturn is purchasing units at a discount. The prevailing thought is, "The market is falling, my money is drowning," instead of the more accurate, "I am acquiring more of the same fund at a sale price."
Consider this simplified example: You invest ₹10,000 monthly in a fund. Assume its Net Asset Value (NAV) is ₹100 in Month 1, falls to ₹70 by Month 6, and partially recovers to ₹90 by Month 12. If you stop your SIP when the NAV hits ₹70, you are refusing to buy at the cheapest point—the exact opposite of how you'd behave during a festive sale for any other product.
How to Fortify Your SIP Discipline
So, how can you resist the urge to hit pause? Dhirendra Kumar suggests a three-step approach.
First, segregate your money by time horizon. Equity SIPs should be dedicated exclusively to long-term goals (10, 15, or 20 years away). Do not depend on this capital for short-term needs or emergencies. This is why the basic advice of maintaining an emergency fund and using debt instruments for near-term goals is critical. At Value Research, they advocate for this financial cushion before recommending equity SIPs. If your SIP money is truly long-term, a bad year is just a bump in the road, not a final verdict.
Second, make investment decisions in a state of calm and do not renegotiate with your future panicked self. Write down a simple rule: "I will not stop my SIPs due to market movements. I will only stop or alter them if my income or financial situation changes drastically." Treat your SIP as a non-negotiable standing instruction to your future self.
Third, reframe your perspective. Instead of thinking, "The market is crashing, and I am losing money," train yourself to think, "The market is on sale, and my SIP is buying more for the same amount." While some disciplined investors even increase their SIP amount during major corrections, for most people, the simple act of not stopping is victory enough.
The Ultimate Differentiator: Persistence
When reviewing decades of SIP data, the standout factor for success isn't finding the perfect fund or timing the market entry. The single most important question is: Did the investor persist through the ugly, fearful periods, or did they disconnect the SIP just when it was doing its most valuable work?
The next time markets tumble and you feel the itch to stop, remember this: the feeling is normal, but the action is costly. Your SIP doesn't require you to be fearless. It simply asks you to avoid one critical mistake—turning it off when it is finally buying assets at a discount. If you truly meant "long term" when you started, don't let a bad year scare you away from a sound strategy. Close the investment app, let the SIP run automatically, and give your future self the chance to be pleasantly surprised.
For any queries, you can reach out to Dhirendra Kumar via email at: toi.business@timesinternet.in.
