SIP Through the Storm: What 20 Years of Market Data Reveals

SIPs by Indian investors have been rising over the last decade, increasing their participation in the market and the depth of the equity markets. However, recently there has been a clear trend of more SIP stoppages than addition of new SIPs over Jan-Mar 2025.

This downward trend coincided with a significant market correction, where the Nifty 50 fell by ~5%, Nifty Midcap fell by ~12% & Nifty Small cap fell by ~18%.

SIP Data (source AMFI)

These figures suggest that market volatility led more investors to pause or stop their SIP contributions, defeating the purpose of SIP. We believe that SIPs work like an algorithm to automate the savings habit.

SIP: An Algorithm for Rational Investing

A hypothetical all-knowing investor is supposed to sell/reduce their holdings in euphoric times and buy/add more in market downturns, but human emotions and inherent market unpredictability make us do the opposite: invest in times of euphoria and sell during downturns. SIP is a simple algorithm that helps us to overcome these human biases:

• When markets are up (euphoric phase), SIP buys fewer units.

• When markets are down (bear phase), it buys more units.

  
  

This is classic rupee cost averaging in action - no prediction, no panic, just disciplined execution. Whether it's the dot-com bubble, the 2008 global financial crisis, or the COVID-19 shock in 2020, markets have always bounced back. These cycles aren’t warnings to exit, they’re times to stay disciplined.

Our Study: SIPs & Bear Markets

We investigated the importance of staying disciplined through the downturns.

The bear market cycles are marked in the NIFTY chart above. The following study shows how a SIP of Rs. 5,000/- in Nifty 50 running for 20 years (2004-2024) going through multiple cycles of correction performed.

Here’s what we found:

• Bear market SIPs accounted for just 36% of the total amount invested—but contributed 43% to the final portfolio value.

In other words, the best “value” was built during the most painful periods. Had investors stopped SIPs during downturns, they would have missed the most impactful phases of wealth creation.

Conclusion

The study reinforces the point of view that SIPs, by design, automate saving behavior, removing emotions, enforcing discipline, and turning downturns into long-term advantage. But that advantage only works if you stay the course through different phases of the market. 

In essence, volatility is not the foe - abandoning your SIP in volatile times is!