SIPs in the Age of Volatility: Will investors stay the course?

For years, New Delhi-based Ashish Kumar, 30, steered clear of the stock market, wary of its unpredictability. But as the post-Covid bull run became a hot topic at gatherings of family and friends, temptation got the better of him. “I invested large sums in equity mutual funds last year, expecting solid returns. But I’m staring at massive losses. I don’t know whether to cut my losses or stay invested. The steep decline in my portfolio has started affecting my sleep,” he says, frustration evident in his voice.

On the other hand, Rashmi Tewari, 42, from New Delhi, is calm amid the turbulence. The seasoned investor is continuing her systematic investment plans (SIPs) without a second thought. “I’ve been investing for 18 years. I’ve seen the global financial crisis, the Covid crash, and countless market swings. I’ve learnt that equity markets are cyclical. Patience is the key. You have to just wait for the tide to turn,” she says.

Two investors, two contrasting mindsets—one anxious, the other unwavering in conviction. Their experiences reflect the broader sentiment in the market where new entrants are learning first-hand that the stock market isn’t a one-way street to profit.

“The market today has two types of investors. Those who have been around for years and don’t panic. They see this as an opportunity to invest more. But the newer investors, especially those who have joined in the last few years, are feeling jittery. Many, particularly those investing through online platforms without a clear plan, are unfamiliar with volatility. When markets fall, their first instinct is to pull out. That’s why we have seen some redemptions,” says A. Balasubramanian, Managing Director & CEO, Aditya Birla Sun Life Mutual Fund.

The numbers tell the story. According to the Association of Mutual Funds in India, while 4.5 million SIPs were opened in February, 5.5 million were discontinued. Some of this decline— 1.2–1.5 million—is attributed to reconciliation with exchanges and registrar and transfer agents, for 2024, though. The ratio of SIPs discontinued/completed to new registrations was 122% in February 2025, the highest since at least April 2021. Similarly, in January 2025, 6.1 million SIPs were discontinued and 5.6 million new ones registered. In December 2025, however, the numbers were 5.4 million new SIPs vs 4.5 million stopped SIPs. The ratio of SIPs discontinued to SIPs registered was 109% in January 2025 and 83% in December 2024. Moreover, the number of contributing SIP accounts fell from 83.4 million in January to 82.6 million in February. Monthly SIP collections dropped from Rs 26,400 crore in January to Rs 25,999 crore in February. The mutual fund industry’s assets under management also declined, from Rs 67.25 lakh crore in January to Rs 64.53 lakh crore in February.

However, on the brighter side, the investors have still not hit the panic button. Though there is an increase in discontinuation, these SIPs are still only 6% of the 82.6 million contributing SIPs. Moreover, there are signs markets might have a strong rebound as FII buying regains momentum. After offloading stocks worth Rs 1.5 lakh crore this financial year, FIIs reversed course, investing Rs 3,181 crore on March 21 and Rs 5,263 crore on March 24, leading to total inflows of over Rs 8,444 crore in just two days. The recent uptick has happened when FIIs have largely been net sellers, pulling out Rs 26,455 crore in March, Rs 34,574 crore in February, and Rs 78,027 crore in January.

“I compliment the investors. Generally, they have shown discipline and not pressed the panic button. The market has fallen more than expected but it will come back. People have confidence,” says DP Singh, Deputy Managing Director, SBI Mutual Fund.

This is the first decline after the SIP boom that lasted for more than four years after the pandemic. The trigger was 32% CAGR returns between March 2020 and September 2024. Mutual fund folios surged from 89.7 million in March 2020 to 232.2 million in February 2025.

The correction

The correction has been unforgiving and shaken investor confidence across segments. The reasons for the downturn include overvaluation of small and mid-caps, selling by foreign institutional investors and weak earnings. These were exacerbated by global factors such as trade tensions, strong U.S. dollar (leading to outflows from emerging markets) and overall uncertainty. In this, mid and small-caps have been hit the worst. The reason is simple: they had rallied more much sharply and attracted significant investor interest. The concerns over overvaluation and potential correction were being aired for some time but these come to a head when S. Naren, CIO, ICICI Prudential Mutual Fund, issued a warning in February 2025. Naren cautioned investors against investing in overpriced stocks, even via SIPs, unless they were willing to continue for at least 20 years. He pointed to 1994-2002 and 2006-2013 periods when mid-cap SIPs failed to generate returns. As if on a cue, investors pressed the brakes—mid-cap funds saw a 34% decline in net inflows from Rs 5,148 crore in January to Rs 3,407 crore in February while small-cap funds recorded a 35% drop from Rs 5,721 crore in January to Rs 3,722 crore in February.

Another major casualty has been sectoral and thematic funds, the standout performers of 2024, when they got inflows of over Rs 1.4 lakh crore. These funds focus on specific industries or investment themes and typically get massive attention during bull markets. In February, they saw net inflows of Rs 5,711 crore, a steep 37% drop from Rs 9,017 crore in January. This signals that investors may be shifting from risky theme-based investing to more stable strategies.

The reversal of the trend will depend on the answer to one question. How long will this downturn continue? “I do not see meaningful returns for the next three-five years. In fact, returns could be lower than a bank fixed deposit or even negative until 2029-30,” market expert Shankar Sharma, the founder of GQuant, told BT. In contrast, Samir Arora, the founder of Helios Capital, says the pain may not last as long. He says the bleeding could end within one-two months, though a full recovery may take longer. “The bleeding may end in one or two months. But then the repairing of foreign and domestic confidence might take another three-four months. So if we can get away in 2025 by recovering some of what we have lost this year, that would be good,” he says.

It’s tough to tell. From a valuation standpoint, the market has come off highs, but it is still trading above historical averages. According to a Motilal Oswal report, India’s market capitalisation-to-GDP ratio is 120% of FY25E GDP, compared to the long-term average of 85%. But the Nifty’s 12-month trailing P/E ratio is 21.2x, below the historical average of 22.7x, but still not at deep-discount levels. The last Sensex high was 85,978.25 in September 2024. The top was reached around the time China announced a massive economic stimulus. “Since then, foreign investors have been fleeing the Indian stock market. It has been six months, but the Chinese economy hasn’t shown any strong signs of revival. Its growth is around 5%, which isn’t good enough for maintaining investor interest. Inflation is falling globally. Interest rate cuts are on the cards. In the next few months, the impact of the repo rate cut will be seen on business loans, impacting private investment too. Bear market sentiment can’t stay for long in India,” says VP Singh, Program Director—PGDM, Professor of Economics, Great Lakes Institute of Management, Gurgaon.

In a nutshell, the fate of SIPs will depend on where markets go from here. If the correction deepens, investors may hold off on new investments and even redeem existing ones. But if they stabilise, disciplined investors who have stayed put through the peaks and troughs could benefit immensely in the long run.

Will the SIP Story Continue?

With market volatility shaking investor confidence, the crucial question is: Is this a temporary shakeout, or are we witnessing a deeper shift in investor behaviour? Retail investors have historically been lured by extraordinary returns by mutual funds in the past. But with markets coming off highs, their confidence is being tested. A key factor influencing sentiment is the sharp drop in equity returns compared to safer alternatives like fixed deposits. Consider this: While the Nifty 50 has delivered just 1.8% over the past year, mid-cap and small-cap indices have returned only 4.6% and 5.6%, respectively, as on March 13, 2025.

In spite of this, many experts argue that downturns should be seen as opportunities rather than setbacks. “From a fundamental perspective, rupee cost averaging plays a key role in SIP investing. Market downturns provide opportunities for long-term investors,” says Swarup Mohanty, CEO, Mirae Asset Mutual Fund. “Ask fund managers, and they’ll tell you their goal is to buy quality businesses at good prices. Right now, valuations are attractive for accumulation. While no one can exactly predict the upturn, the more units you accumulate before it does, the greater the potential wealth creation,” says Mohanty.

Does that mean investors should continue their SIPs even in small and mid-cap funds given the extreme volatility in these segments? “If you’re thinking about stopping the SIP or redeeming your investment, note down the NAV of your fund today. Revisit it a few years later, and you’ll see whether your decision was right or wrong. The Nifty has declined just 15-17%. If such a correction makes you uncomfortable, clearly you are not an equity investor to start with,” says Mohanty.

The wild swings in small and mid-caps are nothing new. Aashish Somaiyaa, CEO of WhiteOak Capital AMC, says the small-cap index plunged 66% from January 2018 to April 2020. Then, it quadrupled by October 2021, only to fall back to 2018 levels by March 2023. It surged to a new high in 2024 and has now dropped 25%. “This level of volatility is not for everyone. That’s why we don’t have an open-ended small-cap fund. Entering at the peak and panicking when markets fall 20-25% is a recipe for disaster.”

While fund managers and industry leaders stress the need to have patience, mutual fund distributors are playing a critical role in managing investor anxiety, especially in smaller towns and rural areas. Take Soni Sharma, a 38-year-old distributor in Aligarh, Uttar Pradesh, who has over 250 clients. She spends most of her days calming investors rattled by the market dip. “Around 40% of my clients have called me in panic,” she says. “Most of my time is spent reassuring them that their losses are on paper unless they withdraw. The market has cycles, and patience is the key.” She says those who have recently invested lump sums or started SIPs less than three years ago are the most anxious. “Investors who have been in the market longer understand that corrections are part of the journey. They’ve seen the cycles and know that markets recover over time,” she adds. Will investors stay the course or will this volatility lead to a long-term shift away from SIPs?

“India’s SIP boom is likely to continue, fueled by growing financial awareness, rising retail participation, and a shift from physical to financial assets. Over the past five years, monthly SIP inflows have tripled, reflecting investor confidence in SIPs as a disciplined, long-term investment strategy. The expansion of digital platforms, fintech innovations, and India’s strong economic trajectory further support this growth,” says Himanshu Kohli, Co-founder, Client Associates, a Gurgaon-based wealth management firm. “The SIP boom is likely to continue as Indian investors are increasingly shifting from traditional savings to financial assets. SIPs help investors navigate volatility, making them more attractive during uncertain times,” says Rajul Kothari, Partner, Capital League, a Gurgaon-based boutique wealth management firm. While short-term market dips may impact sentiment, the structural trend of SIP adoption remains strong, driven by long-term wealth-building aspirations, says Kothari.

Where to invest?

The market volatility has left investors wondering where to invest. Equity mutual funds have given a negative return of 13% over the last six months, following which net inflows have plunged by 26%, from Rs 39,688 crore in January to Rs 29,303.34 crore in February 2025.

“Investors should focus on asset allocation, stay invested through cycles, and avoid making emotional decisions based on short-term movements. SIPs remain one of the best ways to navigate volatility and build long-term wealth. A tilt towards large-cap funds in the current environment can provide stability while allowing for a potential upside as the sentiment improves,” says Kothari.

Moreover, investors should assess their risk tolerance before making any decisions. If it’s low, they can invest in a mix of equity and debt. “A combination of equity balanced by debt is more stable and tax-efficient compared to pure equity in times like these. Balanced Advantage, Equity Savings and Multi-asset funds (which have exposure to gold also) should be preferred,” says Kothari.

Balasubramanian agrees. “Multi-asset allocation funds invest across assets, including gold and silver, which diversifies risk. A combination of equity and fixed income can be ideal for investors seeking long-term wealth creation,” he says. That is perhaps why multi-asset allocation funds saw an uptick in inflows, Rs 2,228 crore in February compared to Rs 2,123 crore in January. This indicates that many first-time investors are opting for a diversified approach instead of committing entirely to conventional equity schemes.

Multi-asset funds invest across various asset classes such as equities, debt, and commodities to enhance diversification. Balanced advantage funds, also called dynamic asset allocation funds, actively shift their allocation between equity and debt in response to market conditions, aiming to optimise risk and returns.

“Robust fundamentals combined with high valuations make a compelling case for investing in hybrid category funds. Also in equities, large-cap funds are favoured over mid and small-cap schemes due to their relatively attractive valuations and the potential resurgence of foreign portfolio investments, which could drive outperformance,” says Kohli.

D. P. Singh of SBI Mutual Fund also advocates a diversified approach. “Multi-cap funds are one of the best options now. If someone wants to take a cautious approach, multi-asset allocation funds are a suitable choice. Multi-cap funds collected Rs 2,518 crore in February, down from Rs 3,567 crore in the previous month. “Multi-cap is the best category as it does not include one cap. It can be large, mid or small. The fund managers can go wherever they want to,” he says.

Not to mention the role of gold when it comes to diversification and minimising risk concentration. “5-10% of every portfolio should be gold, through gold mutual funds, as the current rally will continue to be driven by global central bankers. The position can be built in a staggered manner,” says Kothari.

SIPs have long been a preferred investment route in India. They are ready to catch on further considering SBI Mutual Fund recently started a SIP of Rs 250 on daily, weekly or monthly basis in its SBI Balanced Advantage Fund to reach the remotest parts of the country.

Whether SIPs continue to dominate or see a slowdown will depend on investor resilience in the face of volatility. History suggests that those who stay invested through downturns reap handsome rewards when the market rebounds. 

@teena_kaushal