Sensex falls over 1,200 points on Iran-Israel war; should SIP investors hit pause or stay invested?

Should you stop your SIP when markets fall? Here's what experts say.

• Indian markets fell sharply amid West Asia geopolitical tensions
• Experts advise against stopping SIPs during market downturns
• Continuing SIPs helps investors benefit from rupee cost averaging

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Indian stock markets opened sharply lower on Monday, with the Nifty 50 falling over 300 points, as escalating geopolitical tensions in West Asia rattled global risk sentiment. The Sensex, too, tumbled over 1,200 points points in early trade, mirroring a broader selloff across global markets.

For millions of retail investors, the market mayhem has triggered a familiar anxiety.

And for the nearly 9.92 crore Indians who have active SIP accounts, many of whom may be watching their mutual fund portfolios turn red for the first time in a while, the instinct to hit pause or stop their SIPs altogether may feel tempting right now. But should they?

Experts say, not so fast.

Why stopping your SIP could be a costly mistake

When markets fall sharply, the urge to do something, anything, feels overwhelming. But for SIP investors, the worst thing you can do may be exactly that.

"SIP is a disciplined investment strategy which is to be considered as a long-term compounding tool. Opting out or pausing SIPs during these times disrupts its structure. SIPs are designed precisely for uncertain phases and not smooth markets," says Kresha Gupta, Director and Fund Manager at Steptrade Capital.

In other words, the very moment that feels like the right time to stop is actually when SIPs are doing their most important work.

Ashish Anand, Partner at Fortuna Asset Managers, agrees. He says, "Market corrections are a natural part of equity investing. Market declines enable SIP investors to build their portfolio by purchasing additional units at reduced prices. Keep your eyes on your future targets instead of getting distracted by brief international conflicts."

Market falls are temporary, history says so

Gupta points out that geopolitical tensions have historically led to a 5 to 10 percent fall in Indian markets, but recovery has followed within 3 to 6 months. Stopping your SIP during that window doesn't protect you, it just ensures you miss the rebound.

Lt Col Rochak Bakshi, CFP at Trunor Enterprises, echoes this. "Short-term volatility, even when triggered by geopolitical shocks, shouldn't derail your long-term SIP plan.

Investors who stay consistent through uncertainty often end up with a lower average cost and stronger long-term returns," he adds.

The reason for that lower average cost is something called rupee cost averaging, and it's the engine that makes SIPs particularly powerful during downturns.

How rupee cost averaging actually works

Here's a simple way to understand it. Imagine you invest Rs 10,000 every month through a SIP. In a normal month, if the NAV (net asset value, or the price of one unit of the fund) is Rs 100, your Rs 10,000 buys you 100 units.

Now, say the market falls 20 percent due to a geopolitical shock. The NAV drops to Rs 80. Your Rs 10,000 now buys you 125 units instead of 100, that is 25 more units for the same money.

Vijay Maheshwari, CWM and founder of Stocktick Capital, puts it well. "SIPs mechanically benefit from volatility via rupee cost averaging. A Rs 10,000 monthly SIP running over 12 months, where the NAV drops 20 percent in just one of those months, ends up accumulating roughly 1,225 units compared to 1,200 units if the market had stayed flat throughout," he says.

That may sound like a small difference, but compounded over years, those extra units bought cheap during a downturn can meaningfully improve your overall returns.

The key point: when you stop your SIP during a fall, you lose the opportunity to buy more units at lower prices. You lock in the loss instead of averaging it out.

Look back at 2008 and 2020

If you need more conviction, history offers it. Both the global financial crisis of 2008 and the COVID-19 crash of 2020 saw markets fall 30 to 40 percent. In both cases, investors who stayed the course and kept their SIPs running saw their portfolios recover, and then some, over the following months and years. Those who panicked and exited locked in their losses and missed the recovery entirely.

What should you actually do right now?

Staying invested doesn't mean being passive. Maheshwari suggests a few practical steps: take stock of your investment horizon and risk appetite, make sure you have 6 to 12 months of expenses set aside as an emergency fund so you're not forced to redeem investments at a bad time, and if you have surplus cash, consider using this dip to selectively buy more.

The bottom line, as Gupta puts it simply: "If SIPs are stopped during any market fall, it affects their long-term return potential." The math, the history, and the experts are all saying the same thing, stay the course.