How SIP has been the strong hero across historical market cycles

Markets have taken a sharp downturn, sparking fear and uncertainty among investors. The sentiment has shifted from euphoria to caution, with many questioning whether to stay invested or wait for further declines. Historically, such corrections have been moments of panic for some—but golden opportunities for those who remain disciplined.

ETMarkets.com

Data as on 28th Feb’25. Source: ICRA MFI. PRI Values have been used for the computationThe above data demonstrates whether an investor invests from the top or bottom of the crisis, there is no material difference in the returns. Longer investment periods allow markets to complete their cycles of downturn and recovery, leading to normalization of returns that diminishes the initial impact of the crisis entry point.

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Market downturns cause short-term disruptions. However, investors who stayed invested in SIPs saw substantial growth in recoveries.

Why should we continue with SIP in falling markets?

1. Crises Create Buying Opportunities

– SIPs let you buy more units when markets fall, lowering your average cost. This effect i.e. rupee-cost averaging—ensures higher returns when markets recover.

– SIP returns across all indices rebounded strongly post-crisis, reinforcing incremental benefits by staying invested.

2. Small & Midcaps Deliver Higher Returns, but with Increased Volatility

– The Nifty Midcap 100 and Nifty Smallcap 100 consistently outperformed the Nifty 50 in terms of long-term returns

– However, these segments also exhibited higher short-term fluctuations, requiring a longer investment horizon for optimal gains.

– Investors with a long-term perspective have historically been rewarded with higher growth potential in these segments.

3. SIP Beats Market Timing

– Trying to time the market rarely works. A disciplined SIP approach has historically delivered better results.

– Even in extreme downturns, continuing investments resulted in strong recovery-phase returns.

– SIPs remove guesswork in market timing, keeping investments consistent across cycles.

4. Power of Compounding

– With compounding, market fluctuations become less significant over long investment periods

– As the market recovers, not only do the initial investments appreciate, so do the returns, that adds up to the overall return generated

Strategic Takeaways for Investors

Stay Invested & Top up in Downturns—This Lowers Your Cost & Boosts Long-Term Gains “Market downturns should be viewed as opportunities rather than threats.

Diversify Across Market Segments: While large-cap stocks offer stability, mid and small-cap investments provide higher growth potential, making a diversified approach ideal.

Leverage Market Cycles for Long-Term Gains: The above table confirms that economic crises are temporary, but the market’s trajectory towards growth is long-term. Investors who remain patient and consistent reap the rewards of compounding.