Is It a Good Time to Start an SIP During a Market Fall?

A sharp market decline often leads investors to ask whether to start a Systematic Investment Plan immediately or wait until prices stabilise. An SIP makes fixed investments at regular intervals, so the buying price changes as the fund’s net asset value (NAV) moves.

A lower NAV allows a fixed SIP instalment to purchase more units. However, buying more units does not automatically create a profit: their market value may fall further and recovery may take time.

For investors considering an SIP during a correction, the relevant questions are time horizon, ability to absorb losses, investment purpose and whether the chosen fund’s risk suits that objective.

The hypothetical example below shows what falling and recovering NAVs can do to unit accumulation; it is not based on an actual fund’s returns.

Illustration: ₹1,000 SIP When NAV Changes

1. Falling NAVs Increase Units Bought

The same ₹1,000 purchases 50 units at an NAV of ₹20 but 80 units at an NAV of ₹12.50. Across the example’s four instalments, 255 units accumulate for ₹4,000. The average purchase cost is about ₹15.69 per unit. This demonstrates rupee-cost averaging mechanically, without needing to predict the lowest point.

2. Rupee-Cost Averaging Does Not Remove Losses

If the NAV remains below the average cost when the investment is valued or redeemed, the overall holding may show a loss. AMFI specifically cautions that rupee-cost averaging neither assures profit nor protects against declining markets. The idea reduces dependence on the entry price of one large investment; it does not eliminate equity market risk.

3. Waiting for the Bottom Creates Another Risk

The lowest market level can only be recognised reliably after the event. An investor who postpones every contribution until a perfect entry price appears may miss part of a recovery. An SIP substitutes a fixed schedule for repeated timing decisions, although it cannot promise a better outcome than a lump-sum investment made at a favourable price.

4. Investment Horizon Changes the Answer

A decline may be manageable for money intended for a distant goal, but it can be disruptive when funds are needed soon. The time available for recovery should be considered before committing to a volatile scheme. A scheduled SIP into an unsuitable high-risk fund does not become suitable simply because the market has fallen.

5. Behaviour During Drawdowns Matters

Stopping an SIP in response to short-term losses changes the investment plan precisely when prices have moved lower. Continuing without reviewing finances can also be unwise if income has become uncertain or emergency savings are inadequate. The relevant distinction is between a planned change in financial circumstances and a reaction driven solely by daily market movements.

6. How to Interpret a Market Correction

A correction does not establish that every stock or mutual fund is undervalued. Fundamentals, earnings expectations, valuations and liquidity all influence future returns. Investors should examine the scheme mandate and riskometer, not assume a market fall is a guaranteed buying opportunity. The decision to start a regular investment is separate from predicting the next index move.

Conclusion

An SIP during a market fall can accumulate additional units at lower NAVs, but losses remain possible. The useful discipline is a pre-set contribution schedule matched with affordability, risk tolerance and time horizon. Market timing is uncertain; the arithmetic of rupee-cost averaging is not.