The Indian stock market has seen significant corrections, especially in small and mid-cap segments, leaving investors questioning: Should you stop SIP during market fall?
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Market Downturn and Its Effect on SIPs
The current decline has considerably impacted indices such as the BSE Smallcap and Nifty Midcap, which have dropped by 9% and 8.69%, respectively, within a week. Over 70% of stocks in these categories are below their 200-day moving averages, signaling strong selling pressure.
Financial experts believe that these market fluctuations are due to high valuations, macroeconomic challenges, and changing investor sentiments. Despite the uncertainties, investment professionals emphasize the importance of maintaining Systematic Investment Plans (SIPs) for long-term financial growth.
Should You Stop SIP During Market Fall?
Pausing SIPs in a declining market is often compared to quitting a game just because the competition is tough. Edelweiss Mutual Fund reinforced this perspective, urging investors to remain committed for better long-term returns.
Radhika Gupta, CEO of Edelweiss MF, advised investors to avoid panic-driven choices, as SIPs are structured for long-term wealth creation. She emphasized that holding SIPs for 10, 12, or even 20 years provides substantial benefits, while exiting prematurely can lead to lost opportunities.
Expert Opinions on Market Volatility
Chirag Muni, Executive Director at Anand Rathi Wealth Limited, explained that both domestic and international factors are influencing market instability. These include weaker Q3 earnings, foreign institutional investor (FII) outflows, Japan’s carry trade, China’s stimulus measures, and fluctuating US treasury yields.
Atul Shinghal, CEO of Scripbox, noted that mid- and small-cap stocks experience significant volatility, sometimes fluctuating between 20-30%. However, historical trends indicate that even after sharp corrections—such as the 55% decline in small caps between January 2018 and March 2020—strong rebounds often follow, with gains exceeding 150% over the next few years.
SIP Trends and Investor Behavior
Despite market fluctuations, SIP investments have remained consistent. January saw a rise in small-cap fund inflows, reaching Rs 5,721 crore, while mid-cap funds recorded Rs 5,148 crore, demonstrating that investors are seizing buying opportunities rather than exiting SIPs.
Akhil Chaturvedi, Executive Director at Motilal Oswal AMC, confirmed that SIP flows in mid- and small-cap funds have remained steady, with no significant outflow trends or panic-driven withdrawals.
Best Strategy for Market Dips
Kaustubh Belapurkar, Director of Fund Research at Morningstar India, highlighted that SIPs are designed to help investors maintain financial discipline while avoiding market timing risks. Equity-focused funds saw net inflows of Rs 39,688 crore in January, underscoring the resilience of long-term investment strategies.
Muni recommended that during a 5-10% market correction, investors with available funds could consider lump sum investments while continuing their SIPs. Moreover, diversification is essential—an optimal allocation might include 50-55% in large caps, 20-25% in mid caps, and the remainder in small caps to navigate market fluctuations efficiently.
Final Verdict: Stay Committed to Your SIPs
Market corrections are temporary, while disciplined investment paves the way for long-term success. The answer to “Should you stop SIP during market fall?” is a definite NO. Instead, staying invested, re-balancing portfolios as needed, and leveraging dips for strategic investing can lead to robust financial growth over time.