Should You Stop Your SIP Now?

While it is an undeniable fact that the market downturn has impacted investors to the extent that their mutual fund investments have been cut short in their upward spiral of growth, this should not result in an immediate curtailment of the systematic investment plan (SIP). Such an action would imply planting a tree and then uprooting it during a storm. The article presents an analysis of how long-term SIPs can overcome market volatility unless there are compelling reasons to stop it 

Over the past five months, India’s equity markets have experienced a significant downturn, profoundly impacting mutual fund returns. Since their peak in late September 2024, the Nifty 50 index has declined by approximately 13 per cent, underperforming both Asian and global emerging market peers. This decline is attributed to a combination of slowing corporate earnings growth, with Nifty 50 companies reporting only a 5 per cent increase in the October-December quarter—the third consecutive quarter of single-digit growth—and substantial foreign investor withdrawals, totalling ₹2,08,250 crore (USD 25 billion) since the market’s peak. 

The downturn has been particularly severe in the Small-Cap and Mid-Cap segments. Small-cap stocks have entered the bear market territory, falling over 20 per cent from their September peak, with analysts predicting further declines. Despite these sharp drops, valuations remain elevated based on various estimates. The small-cap index’s forward 12-month price-toearnings ratio at 24.5 times is significantly higher than its 10-year average of 16 times. This market volatility has directly affected mutual fund performance. 

Equity mutual funds have seen a decline in assets under management (AUM), with a reduction of ₹1.63 lakh crore (5.26 per cent) since September 2024, bringing the total AUM to ₹29.46 lakh crore as of the end of January 2025. As such, systematic investment plans (SIPs), a popular investment route for retail investors, have also been impacted. The value of units accumulated through SIPs over the past year has diminished due to the sharp market decline, leading to negative returns for many investors. The SIP return graph for various fund categories over the past year highlights the subdued performance of SIP investments. 

While most major indices, except for small-cap, delivered positive returns over the last year, SIP returns tell a different story due to market fluctuations—rising initially before experiencing a decline. Barring a few exceptions, the majority of funds have yielded negative returns over this period. On a median basis, Large-Cap funds performed the best, albeit with a negative return of -8.13 per cent, whereas small-cap-dedicated funds fared the worst, recording a -18 per cent decline. This indicates that most investors who initiated SIPs in equityfocused funds over the past year are likely facing negative returns on their investments. 

SIP Returns by Category in the Last One Year (ending February 21) 

In summary, the recent downturn in India’s equity markets has led to decreased returns across various mutual fund schemes, prompting investors to reassess their portfolios and investments. 

The SIP Dilemma
The recent volatility in India’s equity markets has ignited fierce debates around SIPs, with social media platforms and news channels buzzing with anxious investors questioning whether to halt their investments. Questions like “Should I pause my SIPs before losses deepen?” have gone viral, particularly after the equity indices plunged in February, the fifth month in a row, and in the process, eroding returns for many SIP holders. Headlines screamed, ‘Market Crash Wipes Out Gains’ and ‘Is this the End of the Bull Run?’ Social media platforms were ablaze with panic-driven discussions. Forums were flooded with anxious questions: “Should I pause my SIPs before the losses deepen?” and “Is it too late to exit?.” 

The fear was palpable, and retail investors across the country found themselves caught in a whirlwind of doubt and confusion. This surge in panic-driven discussions underscores a deeper dilemma – the clash between emotional fear and financial discipline. While falling NAVs and bearish headlines trigger instincts to cut losses, experts argue that abandoning SIPs during downturns negates their core advantage—rupee cost averaging, which allows investors to accumulate more units at lower prices. The tension is palpable: retail investors, swayed by alarmist posts and short-term market narratives, are increasingly torn between protecting their portfolios today and staying faithful to the long-term wealth-creation strategy SIPs promise. 

As forums fill with stories of diminished returns, the question remains: Will fear override patience, or will discipline prevail? Snehal Patil, a 32-year-old working with an ad agency in financial capital of India, Mumbai, was one of the many investors grappling with this dilemma. A disciplined saver, she had started a ₹10,000 per month SIP in February 2021, investing in HDFC Flexi Cap Fund -Direct Plan - Growth Option. For the first three and a half years, her investment journey had been smooth. The markets were bullish, and her portfolio had grown steadily, delivering impressive XIRR of returns of more than 30 per cent till October 2024. She had even begun dreaming of early retirement and a comfortable future. 

But the next five months till now (October 2024 to February 2025) have been a rude awakening. The markets turned volatile, and her SIP returns started to dwindle. From a high of 30 per cent, it is currently at 21.6 per cent. The NAVs of her funds started dropping, and despite her monthly investments going into the fund, her overall fund value slid down. At the start of October 2024, she had a fund value of ₹7.85 lakhs and her total investment was ₹4.5 lakhs. Four months later, her investment has grown to ₹4.8 lakhs as she invests on the first of every month but her investment value has dropped to ₹7.43 lakhs. The once-steady growth she had celebrated is now a source of anxiety. Snehal finds herself checking her investment app multiple times a day, her heart sinking with every dip in the market. 

But Snehal’s uncle, a seasoned investor has a different perspective. He urged her to stay the course. “Snehal, I know it’s tough to see your portfolio value dwindling, but this is exactly what SIPs are designed for. Market downturns are temporary, and rupee cost averaging ensures you buy more units at lower prices. If you stop now, you will lock in your losses and miss out on the recovery,” was his advice. Snehal was torn between two conflicting thoughts. The emotional part of her wanted to hit the pause button to stop the bleeding and regain a sense of control. But the rational part of her remembered why she had started the SIP in the first place—to build long-term wealth, not to react to short-term market fluctuations. 

Historical SIP Returns
Now let us do some analysis to help Snehal to take a rational decision instead of an emotional one. To reach the right conclusion, we took funds with a long history in each category, i.e. large-cap, mid-cap and small-cap. From the large-cap category, we took ICICI Prudential Blue Chip Fund, from the mid-cap segment, we took Kotak Emerging Equity Fund and from the small-cap category, we selected DSP Small-Cap Fund. For these funds we calculated three years’, five years’ and seven years’ rolling SIP returns assuming the investment is done on the first of every month. 

Rolling SIP returns measure the performance of an SIP investment made at regular intervals, such as the beginning of each month in our case, over multiple overlapping periods. This approach helps us to understand how their investment performs across different market conditions rather than relying on a single-point return. In rolling SIP calculations, investments are made systematically, and returns are computed for different timeframes, such as one-year, three-year and five-year periods, by taking all possible investment windows and averaging the returns. 

In our case, we took three-year, five-year and seven-year rolling SIP returns. The most common method for calculating rolling SIP returns is the XIRR (extended internal rate of return), which considers periodic cash flows and provides a more accurate reflection of the investment’s performance. For example, if an investor starts a SIP of ₹10,000 at the beginning of every month, the rolling return for a one-year period is determined by calculating returns for all possible one-year SIP periods. 

The same process applies to longer time horizons like three, five or 10 years, offering a broader perspective on returns over different market cycles. Rolling SIP returns are essential because they eliminate timing bias by spreading investments across various market conditions, ensuring a more realistic view of fund performance. Unlike point-to-point returns, which can be misleading due to market fluctuations at a particular entry or exit point, rolling SIP returns provide a holistic analysis of a mutual fund’s consistency. This helps investors make informed decisions by evaluating how well a fund has performed over time. The following diagram indicates the XIRR returns of different funds. 

The box plots derived from the rolling SIP returns of the funds discussed above highlight how the returns fluctuate significantly in the short run. For instance, in the small-cap category, the minimum return observed is as low as -10.82 per cent if you had continued with SIP for five years, while the highest return reaches 57.30 per cent. In case of shorter duration, the dispersion of returns is even more. This stark contrast indicates that short-term market fluctuations can lead to temporary losses, making it challenging for investors who lack patience to stay invested. 

A similar trend is evident in mid-cap funds, where returns range from -17.22 per cent to 48.14 per cent, suggesting that these funds experience greater volatility than large-cap funds, which have a more moderate fluctuation between -16.89 per cent and 31.39 per cent in the same period. However, a long-term investment horizon significantly reduces the chances of negative returns. Despite short-term volatility, the median returns for small-cap and mid-cap funds for a seven-year XIRR on a median basis stands at 20.04 per cent and 19.68 per cent, respectively, indicating that investors who stay invested over time are more likely to see positive growth. Large-cap funds, being relatively stable, also exhibit a solid median return of 15.38 per cent. 

This demonstrates that while SIP investors may experience periods of downturns, the disciplined approach of consistent investing helps smooth out market volatility. Over time, rupee cost averaging and market recoveries contribute to stable returns, reinforcing the importance of patience in wealth creation. For those investing in mid-cap and small-cap funds, enduring short-term fluctuations is crucial to unlocking substantial long-term gains. The most compelling insight from the study is that none of the selected funds showed a negative return over a seven-year investment period. This trend largely holds across all funds in this category. 

However, it’s important to interpret these findings with caution, as the study is subject to survivorship bias. Stock markets typically experience corrections of 10-20 per cent every 3-5 years due to economic slowdowns, geopolitical events, or other macroeconomic factors. While such downturns can be unsettling for investors, SIPs help mitigate market volatility through disciplined and consistent investing. Snehal sat at her desk, staring at her laptop screen, her mind racing. The market downturn had shaken her confidence but after looking at the above data she decided to stay put. Stopping a SIP isn’t always the wrong move—it depends on the situation. She began to explore scenarios where stopping a SIP might make sense and where it might not. 

Valid Reasons to Stop SIP
1. Goal Achieved - Snehal imagined a scenario where her SIP had already achieved its purpose. For instance, if she had been investing for her child’s college fund and the required amount was now secured, stopping the SIP would make sense. After all, there’s no need to keep investing once the goal is met.
2. Liquidity Crisis - She also thought about emergencies. What if she lost her job or faced a medical emergency? In such cases, she might need immediate cash, and stopping the SIP could free up funds to address the crisis.
3. Fund Underperformance - Snehal then considered the performance of her fund. She pulled up a comparison chart of her HDFC Flexi Cap Fund against its benchmark index over the past three years. To her relief, the fund had consistently outperformed the benchmark, even during the recent downturn. However, she realised that if a fund consistently underperforms its benchmark for three or more years, it might be a valid reason to reconsider the investment. 

The Practical Approach
Snehal knew she needed a structured approach to make an informed decision. She created a checklist to evaluate her situation:
1. Is the goal timeline unchanged? Snehal’s goal was early retirement, which was still decades away. Her timeline hadn’t changed, so stopping her SIP now would derail her long-term plan. 2. Is the fund’s long-term track record intact? She reviewed the fund’s performance over the past seven years. Despite short-term volatility, the fund had delivered solid returns, with a median XIRR of over 15 per cent. This reassured her that the fund was still a good choice.
3. Can she handle short-term volatility? Snehal reminded herself that market fluctuations were normal. The box plots she had studied earlier showed that while shortterm returns could be negative, long-term returns were consistently positive. She realised she needed to stay patient and disciplined. 

The Long Game Wins
After going through the data and reflecting on her goals, Snehal felt a sense of clarity. She realised that stopping her SIP during a downturn would be like planting a tree and uprooting it during a storm. The market’s short-term volatility was just a temporary phase, and her long-term strategy was still on track. She remembered the box plots showing that over a seven-year period, none of the funds in her study had delivered negative returns. This reinforced her belief in the power of staying invested for the long term. Snehal’s story is a reminder that while market volatility can test our resolve, staying true to our long-term goals is the key to financial success.