The Truth About SIPs in a Crash: Why Panic Selling is the Real Loss


Market corrections and crashes are nothing new, yet every time they happen, investors react with panic. The first instinct? Stop SIPs, pull out money, and wait for stability. But is this the right move?

History tells us that the most successful investors—both retail and institutional—understand that downturns are opportunities, not threats. Let’s break down why stopping SIPs during a crash is a mistake and what past crashes teach us about staying invested.

The Investor’s Biggest Blind Spot: Chasing Returns, Ignoring Process

Most new investors enter the stock market after seeing someone make quick money. Maybe a friend, relative, or TV anchor claims they doubled their portfolio in a short time. But what they don’t reveal:

✅ The stocks they held for years before the rally.
✅ The losses they absorbed along the way.
✅ The market cycles they endured.

It’s human nature to focus on results while ignoring the process. This same behavior applies when markets fall—suddenly, investors forget the reasons they started investing in the first place.

Similarly, many investors start SIPs after seeing that historically, SIPs gave 12% annualized returns on average. But averages can be deceiving.

The Deception of Averages: A Story to Remember

A man wanted to cross a river and asked a statistician if it was safe.

The statistician checked the data and said, "On average, the river is only three feet deep."

Feeling reassured, the man stepped in—only to drown in a section that was 6 feet deep!


๐Ÿ’ก Moral of the story: Averages don’t tell the full picture. Just because something seems safe on average doesn’t mean it’s smooth or predictable.

This applies to investing too—expecting a stable 12% CAGR in mutual funds without considering volatility can lead to shocks. The reality? Some years will see 20% gains, others 30% declines, but over time, staying invested smooths out the ride.

The SIP Paradox: Fear During the Best Buying Opportunity

When markets fall, fear takes over. Investors assume losses will keep piling up, so they stop SIPs or redeem investments. But the irony?

๐Ÿ“‰ Lower prices = More units purchased through SIPs.
๐Ÿ“ˆ When markets recover, these additional units deliver better returns.

Stopping SIPs in a crash is like refusing to buy during a store sale!

What History Says: FPI Outflows and Market Recoveries

Foreign Portfolio Investors (FPIs), which include Foreign Institutional Investors (FIIs), are often seen as "smart money." When they exit in large numbers, retail investors panic. But let’s look at past data:

Metrics

COVID-19 Crash (2020)

Market Decline (2025)

FPI AUC Before Crash (₹ crore)

30,78,129 (Jan 2020)

77,96,274 (Sep 2024)

FPI AUC After Crash (₹ crore)

21,17,567 (Mar 2020)

62,38,469 (Feb 2025)

Percentage Change in AUC (%)

-31.2%

-19.98%

Drop in Nifty (%)

-40%

-14.28%

Time to AUC Recovery (months)

7 months

TBD

๐Ÿ“Œ Source: NSDL FPI Monitor (Equity AUC considered). FPI data for 2008 is not available.

Key Takeaways from Past Crashes:

๐Ÿ”น The COVID-19 crash saw FPIs exit in large numbers, yet within seven months, their AUC was back to pre-crash levels.
๐Ÿ”น Nifty fell 40% in March 2020, but long-term investors who continued SIPs saw tremendous gains in the years that followed.
๐Ÿ”น The 2025 decline has triggered FPI selling, but does that mean markets won’t recover? History says otherwise.

Three SIP Investor Scenarios in the 2020 Crash

Investor A, B and C started monthly SIP of 5000 rupees in SBI Nifty Index fund since Jan-2019. During the panic crash in March, 

Investor A stopped SIPs and sold all units on March 31, 2020, locking in a 36% annualized loss.


Investor B stopped SIPs but held onto existing units. By December 2020, his portfolio recovered for a 14% annualized gain.


Investor C continued SIPs, buying more units at lower NAVs. By December 2020, his portfolio gained at 24% annualized returns, thanks to rupee cost averaging!


Lesson: The longer you stay invested, the higher your probability of success.

What Should You Do Instead of Stopping SIPs?

✅ Stick to the Plan – If you started SIPs for long-term wealth creation, short-term volatility shouldn’t change that goal.

✅ Use Rupee Cost Averaging – SIPs buy more units when markets fall, boosting long-term returns.

✅ Look at Index Performance – Over 10-15 years, Nifty has always recovered from crashes.

✅ Consider Increasing SIPs – If you have surplus funds, increasing SIPs during downturns can amplify gains.

Final Thought: Ride the Storm, Reap the Rewards!

If market history has taught us anything, it’s this—markets recover, and those who stay invested benefit the most.

Stopping SIPs in a downturn isn’t risk management—it’s just letting fear dictate decisions. Instead, remind yourself why you started investing and trust the process.

When markets bounce back (as they always have), you’ll be glad you stayed the course. ๐Ÿ˜Š

Take the Right Steps for Your Investments!

๐Ÿ“ข Let’s start a conversation about your SIP investments!

✔️ Are your SIP plans aligned with your goals?
✔️ How to navigate market volatility?
✔️ Which investment choices suit your long-term objectives?

๐Ÿ’ฌ Share your questions and thoughts in the comments or reach out directly!
๐Ÿ‘‰ Let’s take a step towards long-term wealth creation together! ๐Ÿš€


Prasad Yelgodkar


Location: India

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