It is a Monday morning. You open your phone and see the Nifty is down 800 points. Your mutual fund app shows your portfolio in red. Your WhatsApp is blowing up with messages. "Sell everything!" "Market will crash more!" "This is 2008 all over again!" News channels have dramatic music playing behind flashing red tickers.
Your stomach drops. Your finger hovers over the "Redeem" button. Every instinct in your body says get out now before it gets worse.
I am asking you, as calmly as I can, to put the phone down and read this article first. Because what you do in the next 24 hours could be the difference between building wealth and destroying it.
Your SIP Has a Secret Superpower
When you invest through a SIP, you put in a fixed amount every month. Let us say ₹10,000. Here is what happens in different market conditions:
- When the market is high and your fund NAV is ₹200, your ₹10,000 buys 50 units.
- When the market crashes and the NAV drops to ₹100, your same ₹10,000 buys 100 units.
- When the market partially recovers and the NAV is ₹150, your ₹10,000 buys about 67 units.
Notice what happened? During the crash month, you bought double the units for the same money. When the market eventually recovers (and it always has, historically), those extra cheap units generate outsized returns. This is called rupee cost averaging, and it is the reason your SIP actually benefits from market falls.
Let Us Run the Numbers
I want to make this concrete. Imagine you have a ₹10,000 monthly SIP running for 6 months. Here is how two scenarios play out.
Scenario A: Steady Market
- Month 1: NAV ₹100, you buy 100 units
- Month 2: NAV ₹102, you buy 98 units
- Month 3: NAV ₹105, you buy 95 units
- Month 4: NAV ₹103, you buy 97 units
- Month 5: NAV ₹106, you buy 94 units
- Month 6: NAV ₹108, you buy 93 units
Total invested: ₹60,000. Total units: 577. Average cost: ₹104 per unit.
Scenario B: Market Crashes and Recovers
- Month 1: NAV ₹100, you buy 100 units
- Month 2: NAV ₹75, crash! You buy 133 units
- Month 3: NAV ₹60, still falling. You buy 167 units
- Month 4: NAV ₹70, recovering. You buy 143 units
- Month 5: NAV ₹90, climbing back. You buy 111 units
- Month 6: NAV ₹108, full recovery. You buy 93 units
Total invested: ₹60,000. Total units: 747. Average cost: ₹80 per unit.
Same ₹60,000 invested. Same final NAV of ₹108. But Scenario B gave you 170 more units. At ₹108 per unit, those extra units are worth ₹18,360. The crash made you richer, not poorer, because your SIP kept buying through the dip.
COVID 2020: The Best Real-World Example
In February 2020, the Nifty 50 was cruising at around 12,000. Then COVID hit. By March 23, 2020, the Nifty had crashed to 7,511. A 38% drop in barely four weeks. Portfolios that had taken years to build showed massive red numbers.
The panic was real. People I know personally stopped their SIPs. Some redeemed everything, booking 30-40% losses. The logic seemed sound at the time. "The economy is shut down. Who knows when this ends?"
But here is what happened next:
- By August 2020, just 5 months later, the Nifty was back above 11,000.
- By December 2020, it crossed 14,000. Higher than the pre-crash peak.
- By October 2021, it was above 18,000.
- By September 2024, it crossed 26,000.
Investors who kept their SIPs running through March-May 2020 accumulated units at NAVs they will probably never see again. Those 5-6 months of buying during the crash turbocharged their returns for years to come. The investors who stopped or redeemed? They locked in losses at the worst possible moment and missed the entire recovery.
The 2008 Financial Crisis: Same Pattern, Bigger Scale
If you think COVID was scary, 2008 was worse. The Sensex crashed from 21,000 in January 2008 to 8,160 by October 2008. A 62% fall. The global financial system was genuinely on the brink of collapse. Banks were failing. Companies were shutting down. It felt like the world was ending.
An investor who had a ₹10,000 SIP running through 2008 was buying units at prices that seem almost unbelievable today. The Sensex is now above 75,000. Those crash-era units multiplied in value 8-9 times over.
A ₹10,000 monthly SIP started in January 2008 and continued without interruption till 2024 would have grown into approximately ₹75-80 lakhs from a total investment of about ₹19 lakhs. The years that felt the scariest were the years that contributed the most to that wealth.
Why Your Brain Wants You to Sell (And Why You Should Not Listen)
Here is the frustrating part. Our brains evolved to keep us alive on the African savanna, not to manage investment portfolios. When we see a threat, whether it is a tiger or a red portfolio, our amygdala triggers the fight-or-flight response. Adrenaline spikes. Rational thinking shuts down. Every cell in your body screams: "Danger! Run!"
But investing is one of those rare situations where running from danger IS the danger. You do not lose money when the market falls. You lose money when you sell after the market falls. Until you hit that redeem button, the loss is only on paper. It is not real.
Think about it this way. You bought a flat in Guwahati for ₹50 lakhs. During a slow real estate year, someone offers you ₹35 lakhs for it. Would you panic-sell? Of course not. You would say "the market is down, I will wait." Apply the same logic to your mutual funds.
The Rice Analogy
This is the simplest way I explain it to clients. Imagine you buy 5 kg of rice every week for your family. One week, the price drops from ₹60/kg to ₹40/kg. Do you panic and stop buying rice? Do you throw away the rice you already have? No. You think, "Great, rice is cheap. Maybe I will buy 7 kg this week."
A market crash is rice going on sale. Your SIP is your weekly rice purchase. It automatically buys more when things are cheap. The rational response to a sale is to buy more, not to stop buying.
Important Caveat: This Only Works With Long Time Horizons
Everything I have said above applies to equity investments with a 7-plus year time horizon. If you need money within 1-2 years, it should not be in equity funds in the first place. Period.
This is why asset allocation matters so much. Your emergency fund stays in a liquid fund or savings account. Money for next year's goals stays in debt funds or FDs. Only money you will not touch for 7-plus years goes into equity. When your allocation is right, a market crash does not threaten your near-term needs at all. It only affects money you were not going to use for years anyway.
If a crash is keeping you up at night, the problem is not the crash. The problem is that you have too much of your near-term money in equity. Fix the allocation, and the anxiety goes away.
Your Crash Survival Checklist
Print this out. Stick it on your fridge. Read it every time the market drops more than 5%:
- Do not stop your SIPs. This is the single most important thing. Let them run. They are doing exactly what they are supposed to do.
- Do not redeem equity investments unless you genuinely need the money in the next 12 months. If your goal is 5-10 years away, the current price is irrelevant.
- If you have spare cash, invest more. A lump sum invested during a 20-30% crash can deliver extraordinary returns when markets recover. This is the one time lump sum investing beats SIP.
- Turn off financial news. Seriously. News channels make money from your attention and anxiety. Red flashing tickers are designed to scare you into watching more. None of it helps your portfolio.
- Do not check your portfolio daily. Once a month is enough. Once a quarter is even better. Checking daily during a crash is emotional self-harm with no benefit.
- Call your financial advisor. Not your panicking friend. Not your WhatsApp group. Talk to someone who has seen multiple crashes and knows how they play out.
Volatility is the Price of Admission
Equity mutual funds deliver 12-15% annual returns over long periods. FDs give you 6-7%. The extra 6-8% annual return is not free. The price you pay for it is volatility. Temporary drops. Red screens. Anxious months. That is the toll.
But think about what that toll buys you. At 12% returns, ₹10,000 per month for 25 years becomes roughly ₹1.9 crores. At 7% (FD equivalent), it becomes about ₹81 lakhs. The volatility premium is worth over ₹1 crore in this example. That is the cost of letting a few bad months scare you out of the market.
At Redolent Financial, we have guided clients in Guwahati through the 2020 crash, the 2022 correction, and multiple smaller dips. Every single time, the clients who stayed invested came out ahead. Not sometimes. Every time. The pattern is remarkably consistent.
Your SIP does not care about market crashes. It actually works better because of them. Trust the process, stay the course, and let time do the heavy lifting.