Learn · SIPs and compounding
When markets fall
Falls are part of investing. What past ones looked like, and what to do with your SIP.
4 min read
It feels worse than it is
When markets drop, your portfolio shows red and the news gets loud. It's natural to want to stop and wait. But falls are a normal part of investing in shares, and how you act during one matters more than when it started.
Two big falls in India
Fall from the high, in %
The Sensex took until late 2010 to pass its 2008 high. The Nifty 50 was back above its January 2020 high by November 2020.
Source: BSE Sensex and NSE Nifty 50 closing levels, rounded
Guess first
In 2020 the Nifty 50 fell about 38% in two months. How long did it take to get back?
See the answer
Within the year. It recovered within the year. In 2008–09 the Sensex fell more than 60% and took close to three years. Nobody knew either in advance, and the next fall won't follow the same script.
Try it in the app
What your SIP does in a fall
₹5,000 a month. Pick the NAV on the day it buys.
- NAV ₹100
- 50 units Before the fall.
- NAV ₹85
- 58.8 units Down 15%: the same ₹5,000 buys more.
- NAV ₹70
- 71.4 units Down 30%: about 43% more units than before the fall.
An illustration, not a forecast.
Myth
I should stop my SIP until the market settles, then start again.
Fact
No one can reliably tell when a fall has ended. People who stop often miss the cheaper units, and the early part of the recovery, before they feel safe enough to restart.
When changing course does make sense
A fall isn't a reason to sell on its own. It can be time to act if you need the money within a year or two (that money shouldn't be in equity anyway), if you can't afford the SIP any more (pause it rather than stop), or if your goal is close and you're moving to steadier funds as planned.
3 to 6 months
Of expenses in an emergency fund
With this set aside, you don't have to sell investments in a fall to cover a surprise bill.
Words from this lesson
- Past performance: How a fund did before. It doesn't promise future returns.
- Volatility: How much a fund's value swings up and down.
Next in SIPs and compounding: Step-up SIPs: grow it with your salary