What to Do When Markets Crash? SIP Guide for Investors
Understand why market crashes happen, how SIPs respond to falling markets, and the importance of staying invested for the long run.
Rajat Kulshrestha
Head of Mutual Fund Distribution
Understand why market crashes happen, how SIPs respond to falling markets, and the importance of staying invested for the long run.
Rajat Kulshrestha
Head of Mutual Fund Distribution
The Nifty 50 fell nearly 38% from its December 2019 peak to its lowest level on 23 March 2020. Many investors chose to exit their investments during the fall and turned temporary declines into actual losses. Others continued their SIPs and kept investing through the downturn.
A market crash does not destroy wealth by itself. The decisions investors make during a market crash do. Most losses that happen during falling markets come from investor behaviour, not from the market itself. This article covers what to do when markets crash, the mistakes investors should avoid, the benefits of staying invested through market volatility, and how a SIP during market crash periods works over the long term.
Markets have crashed repeatedly in India and globally. The causes vary each time, but a few patterns repeat across the most significant declines, such as:
When the Reserve Bank of India or the US Federal Reserve raises rates sharply, borrowing costs across the economy go up. Businesses pay more to service existing debt and earn less as a result. Equity prices reflect this quickly, often before the full earnings impact even shows up in quarterly results.
Before most major crashes, stock prices have climbed well beyond what company earnings justify. That gap between price and value closes eventually, and it tends to close faster than it opened.
Events such as financial crises, pandemics, wars and geopolitical tensions can affect markets around the world. Even if these events begin outside India, they can influence Indian markets because global economies are closely connected.
Panic can make a market correction worse. Once prices begin falling, fear spreads among investors. Selling increases. More investors see the deepening decline and sell to avoid further losses. More selling pushes prices further down. What starts as a 10% market correction can turn into a 30% or 40% fall, partly because of how participants respond to the initial move rather than to any new fundamental information.
A market correction does not stop a SIP from working. It actually makes the SIP work harder, and here is exactly how that happens.
SIP contributions continue automatically regardless of market conditions. The fixed amount leaves your account on the scheduled date, whether the market is up 5% or down 20%. There is no pause triggered by price movement.
Falling NAV means more units for the same amount. When a mutual fund's NAV drops during a correction, the fixed monthly SIP amount buys a higher number of units. For example, if you invest ₹5,000 monthly and the NAV is ₹50, you receive 100 units. If the NAV falls to ₹25 during a correction, the same ₹5,000 gets you 200 units.
This approach helps reduce the average cost per unit over time. A SIP automatically buys more units when prices are low and fewer when prices are high. Over a full cycle, this brings down the average cost per unit across all your purchases. This is one of the key benefits of a SIP during market crash.
Existing portfolio value drops temporarily on paper. The units you already hold will show a lower total value during the correction. This is a notional or paper loss, not a realised one, unless you actually sell. The units remain intact.
The unit count is what builds your future wealth. During a correction, the total rupee value of the portfolio falls, but the number of units being accumulated each month goes up. When the market recovers and the NAV rises again, more units held at a lower average cost translate directly into higher overall returns.
No action is required from the investor. The SIP investment strategy does not depend on the investor reading the market correctly or deciding when to act. The mechanism runs automatically, which is particularly valuable during corrections when emotional decision-making is at its highest.
This is the most common question when investing during market crash periods. The short answer is no, but the answer to the question Should I stop SIP? involves understanding what stopping costs actually are.
When markets fall, and an investor pauses their SIP, two things happen. First, they stop buying units at discounted prices. Second, they often delay restarting because it is psychologically difficult to invest when news headlines are still negative. By the time they feel comfortable resuming, prices have already recovered.
The investor then ends up with fewer units accumulated at low prices and resumes buying again at higher prices. This is the opposite of what a SIP is designed to do.
What to do when markets crash is to keep the SIP running. If the investment amount feels too large given current uncertainty, reducing it slightly is better than stopping entirely. The goal is to stay in the market through the cycle, not to exit and re-enter.
Staying invested through a market crash through a SIP generates several specific advantages that are worth understanding clearly.
Each instalment during a falling market buys more units for the same rupee amount. This brings down the average purchase price across the investment. When the market recovers, those cheaper units generate a return on the difference between cost and recovery price.
Markets tend to recover sharply at the start of an upswing. An investor who missed the 10 best trading days in the past decade in Indian markets would have significantly lower overall returns than one who stayed fully invested. SIP investing keeps the investor present through these recovery periods.
Deciding when to exit and re-enter a market crash is difficult even for experienced fund managers. Most retail investors get this wrong. A SIP removes this decision by running automatically regardless of market conditions.
Continuing to invest during a downturn creates a habit that serves long-term wealth building. The investor learns to separate market noise from investment decisions.
Units accumulated during a deep fall at low prices contribute significantly to total portfolio returns once markets recover. Some of the strongest SIP return periods have been for investors who started or continued through a SIP during market crash.
Understanding what to do when markets crash also means knowing which mistakes to avoid. Here are some common mistakes to avoid.
The most common error is pausing a SIP during market crash, which locks in the loss in terms of opportunity. The investor stops buying cheap units and waits for certainty that never fully arrives before markets have already moved higher.
Many investors wait for the "right time" to invest after a market crash. In reality, no one can consistently predict when the market has reached its lowest point. Waiting too long can mean missing part of the recovery. A regular SIP removes the need to make that decision by continuing to invest through different market conditions.
Daily portfolio monitoring during a crash amplifies anxiety without providing useful information. Most investors who check often make worse decisions than those who review quarterly.
Putting a large amount in when markets fall briefly and then feel like they have "stabilised" often results in buying before the final leg of the fall has occurred. SIP is better suited to uncertain periods than lump-sum investing.
Shifting equity investments entirely into fixed income during a crash locks in losses and removes the investor from the recovery. It also subjects their returns to inflation over the long term.
Every major market crash in Indian equity history has been followed by a recovery. The timing differs each time, but the direction has been consistent. Long-term investors who understood this and acted on it came out ahead of those who did not.
What to do when markets crash is not complicated. The difficult part is doing it when the market is falling, and every headline suggests things are getting worse.
A long-term investor's biggest advantage is time. Short-term falls have a smaller effect on returns the longer the investment horizon. An investor with 15 years ahead of them who sees a 30% fall this year still has 14 years of potential growth remaining. The correction shrinks in significance the further out the goal sits.
Bear market investing creates a buying opportunity that most investors fail to act on because the experience feels uncomfortable rather than advantageous. Every SIP instalment during a falling market adds units at reduced prices. Those units carry a lower average cost than everything purchased before the fall. When markets recover, the return on those cheaper units is proportionally higher.
Compounding works best when money stays invested continuously. Exiting during a crash and re-entering later breaks the compounding chain. Even a few months out of the market during a recovery phase can noticeably reduce the final corpus over a long investment period.
Investors who held through the 2008 crisis, the 2020 crash, and the 2022 correction all saw their portfolios recover and move higher. None of those recoveries required any action from the investor. The only requirement was staying invested. Long-term investing rewards inaction during downturns far more consistently than it rewards active decision-making.
Keep the following points in mind to stay invested during a stock market crash
Market crashes are a normal part of long-term investing. Every long-term investor goes through multiple corrections and crashes across a full investment lifecycle. The difference between investors who build wealth and those who do not comes down largely to what they do during those periods.
What to do when markets crash has a clear and evidence-backed answer. Keep the SIP running, avoid redeeming at a loss, stay focused on the goal rather than the current portfolio value, and give the investment time to recover. None of these steps requires predicting the market.
My Mudra is a financial services platform that helps Indian investors compare mutual fund SIP options, access investment guidance, and find the right products aligned to their goals.
Whether you are reviewing your existing SIP investment strategy or starting fresh, My Mudra's comparison and advisory support can help you make informed decisions during all market conditions.
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Also Read:
- How to Start SIP Investment Online in India (Beginner’s Guide 2026)
- What is Difference Between Mutual Fund and SIP
Not always. Continuing your SIP during market crash allows you to keep investing at lower prices. Stopping it may reduce the long-term benefit of regular investing and rupee cost averaging.
A market crash does lower prices across equity markets, which historically has created buying opportunities for investors with a long time horizon. Whether it is a good time to invest depends on individual financial goals and risk capacity, not on market predictions.
During a market correction, the NAV of a fund falls, and the same monthly investment buys more units. If the investor stays invested, those additional units can contribute to better returns when markets recover.
Yes. A SIP during market crash periods spreads investment across multiple market levels by investing on fixed dates regardless of conditions. This removes the need to time the market or the recovery, which most investors cannot consistently do correctly.
Long-term investing through a crash allows investors to accumulate more units at depressed prices. When markets recover, the return on those cheaper units is higher than it would have been had all units been purchased at elevated prices. Bear market investing through a SIP automates this process.
The main errors include stopping the SIP, redeeming mutual fund units while prices are low, and shifting entirely to fixed deposits. These actions convert temporary paper losses into permanent ones and remove the investor from the recovery phase.
Increasing a SIP amount during a market correction can result in accumulating more units at lower prices, which may improve long-term returns. This should only be considered if it fits the investor's financial situation.
There is no fixed duration for a market crash. Market volatility can last for different lengths of time, depending on economic conditions and how markets respond.
Head of Mutual Fund Distribution
Rajat Kulshrestha brings over seven years of experience in public markets, specialising in fundamental analysis and valuation frameworks. In his role as Mutual Fund Distribution Head, he oversees portfolio strategy, asset allocation decisions, and fund evaluation processes. On this blog, he offers structured, research-oriented perspectives on SME-listed companies, aiming to enhance financial literacy and analytical depth among market participants.
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