Should I pause my SIPs? Even if I count the slight uptick in equity MFs, I am not confident about market recovery

Should I pause my Systematic Investment Plans (SIPs)? Despite the slight uptick observed in small-cap and mid-cap funds, I am not feeling very confident about the market's potential for recovery. In the last five months, domestic equity mutual funds have experienced substantial corrections, reflecting the overall downturn in equity markets.

Small-cap funds have been heavily impacted, with the most significant declines seen across all equity categories. Between September 26, 2024, and March 14, 2025, the Nifty Smallcap 250 Total Return Index (TRI) dropped by 24%, compared to the 14% decrease in the benchmark Nifty 50 TRI.

Advice by Nilesh D Naik, Head of Investment Products, Share.Market (PhonePe Wealth)

Investments in mutual funds through SIPs has been widely recognised as the most effective method to build long-term wealth. However, during a market fall, like the one being witnessed currently, investors often feel overwhelmed, leading to poor investment decisions. 

A commonly observed trend during such market correction is that investors choose to stop SIPs driven by fear of making losses. This pattern has been evident in recent months, as equity indices have experienced a 10-15% decline from their peak, leading to a significant increase in the ratio of discontinued SIPs compared to new registrations in the industry.  A similar investor behaviour was observed during previous market corrections.

Does such investment behavior help in the long run?

The data indicates otherwise. While it is intuitive that stopping SIPs during market falls would work against investors’ interest, we thought of analyzing the actual data of the past two decades to understand the impact of such behaviour on investment returns. To assess this, we compared the performance of SIP investment in Nifty 500 TR Index over the past five, ten, fifteen and twenty years using the below two scenarios:

Scenario 1: Assumes that an investor continues the SIP over these time periods without any interruption.

Scenario 2: Assumes that an investor discontinues his SIP in lean calendar years that have seen an absolute return of less than 8%. In this scenario, we also assume that for the months the SIP is being discontinued, the investor invests the corresponding instalments in an assured return product delivering a return of 8%. The lean calendar years were 2008, 2011, 2013, 2015, 2016, 2018 and 2022 (details in table 1 below).

Table 1: Calendar year performance of Nifty 500 TR Index

Based on this analysis, here’s what we discovered:

Table 2: Analysis of monthly SIP investment of Rs 1,000 over different time periods

The verdict

Scenario 1 (continuing with the SIP through the market downturn) beats Scenario 2 (stopping the mutual fund SIP during such times) hands down!

The analysis suggests that the final investment value has been lower by about 4% to 21% depending on the SIP period, even if an investor stops the SIP and contributes an equivalent amount in an assured-return-product yielding 8% return. In other words, the cost of stopping mutual fund SIPs during a market fall can have a huge impact on the investors’ returns and long-term wealth creation goals. 

The father of value investing, Benjamin Graham once said.. “The investor's chief problem, and even his worst enemy, is likely to be himself” - and such behavior of investors of discontinuing their SIPs after a market fall is one of the classic examples of this.

If you are contemplating stopping your SIP due to the recent fall in the market, think again!

(Views expressed by the expert are his/her own. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.)