Anyone who enters the arena of equity investing, even a novice, knows that volatility is a part and parcel of being there. Over the years, we have also heard that systematic investment plans (SIPs) help us to tide over this volatility and create wealth.
“The biggest myth is that SIPs are a magic wand for producing market-beating returns,” says Harsh Gahlaut, Co-founder & CEO, FinEdge. The truth is that SIPs are a tool to inculcate the discipline of saving first and spending later.
SIPs allow an investor to accrue substantial savings over time, which, when compounded, can create wealth. Great returns result from a strong investment process, and SIPs provide the ideal platform for one.
Misconceptions related to SIP investing
There are certain other misconceptions when it comes to SIP investing that they offer a guaranteed return, or once decided, you cannot tweak the SIP amounts. Another common misunderstanding is that one can invest only in mutual funds via this instrument.
Experts have noted investors running ₹500– ₹1,000 SIPs across 15–20 funds, thinking more funds equal more diversification, which usually ends up creating confusion rather than better results.
SIP — instrument to deal with market volatility?
SIPs can help manage volatility in areas, like sector-based funds like Banking, Auto, Pharma, or IT, by averaging cost when markets fall. However, sector SIPs need conviction and understanding of long-term trends, because sectors go through cycles, say experts.
For example, banking tends to recover after credit cycles, auto after demand and policy shifts, and pharma/IT after global slowdowns.
Do note that if a sector is facing a structural decline (not just a temporary dip), SIPs won’t help much, like telecom in the early 2010s.
As an addendum, actively-managed MFs may be useful in the context of volatility, because fund managers can make tactical choices, change exposure, or hold cash when necessary. Most retail investors find that actively managed mutual funds are better at managing volatility.
Since ETFs just replicate the index, a 10% decline in the Nifty will also result in a 10% decline in the ETF.
Active management provides discipline and direction because the majority of retail investors don’t monitor markets on a daily basis.
“ETFs are excellent low-cost instruments and complementary investments, but they shouldn’t be the main line of defence against volatility,” says Ashish Padiyar, Founder & Managing Partner, Bellwether Associates LLP.
Gahlaut, however, puts things in perspective when he says that for an investor, the answer to dealing with volatility does not lie in the fund selection, but in managing their investment behaviour and having the right expectations.
For the investor, knowing why they are investing is far more critical than where or how they invest. Once the goal is clear, that gives one the resilience to remain invested through market cycles. Having clarity of purpose allows you to make wise decisions about which funds to invest, for how long, and how much money to allocate to that investment.
Please note that SIPs can be started in any type of market condition: volatile, stable, bearish, or bullish. There is no perfect time to start an SIP. What matters more is time spent in the market, not timing the market.
The best time to start an SIP is when you have money to invest, regardless of market level.
In fact, some of the best SIP results historically came from starting during periods of fear, like in 2008 or 2020, because markets eventually recovered and hit new highs.
“One of the biggest mistakes investors make is trying to time the start of their SIPs,” says Gahlaut. Since they invest consistently, the exact entry point matters far less over the long term.
“SIPs are not designed to avoid volatility; they are designed to benefit from it,” says Padiyar.
Market swings are transformed into long-term wealth creation through the discipline of methodical investing, time, and patience. The most profitable investors just stay invested and let compounding do the heavy lifting instead of attempting to time the market.
“Don’t predict, participate in the market”, says Padiyar.
SIPs and other asset classes
“Yes, SIPs can be used for bonds, gold, commodities, and international mutual funds as well and not just equities,” says Padiyar. In commodities, SIP is limited but available through commodity-thematic MFs or ETFs.
However, SIPs cannot be done directly in physical commodities like gold, silver, or crude oil.
If someone wants to accumulate them, they’d have to manually buy regularly, which is not the same as a normal SIP.
Gahlaut reminds that SIPs must ideally generate inflation-beating returns. While SIPs can be used for most asset classes, they are most advantageous when deployed in high-return, volatile asset classes to maximise their benefits.
SIPs during market crisis
SIPs have historically proved their strength in tough times by letting investors accumulate more units when prices fall.
For example, a ₹5,000 monthly SIP in a Nifty 50 index fund from Jan 2008 to Jan 2013 — including the 2008 crash — would have grown to approximately ₹3.95 lakh on an investment of ₹3 lakh, delivering an XIRR of over 10%, even outperforming bank FDs in that period.
“One of our clients, who neither stopped his SIPs nor lump sum purchase during COVID, made a YoY return of at least 13-14%, where we sold a few of his funds for his house purchase as well. But, returns shrink dramatically when you miss the best 20,30,40 or 50 days investment cycle,” warns Gahlaut.
Next, let’s take the example of the Great Financial Crisis in 2008 and the COVID meltdown of March 2020 and illustrate the power of investing through SIPs and staying invested with a long-term goal orientation.
An investor who began a ₹10,000 monthly SIP in a midcap fund in March 2006 but panicked during the 2008 financial crisis and redeemed his investments would have locked in a loss of about 51% in his portfolio. In contrast, an investor who stayed disciplined and continued the SIP for 10 years invested ₹12.9 lakh and saw the value grow to nearly ₹30 lakh, delivering an absolute return of 131%.
The same lesson played out during COVID. An investor who started his SIP of ₹10,000 in December 2018 and continued irrespective of the massive correction in the market, accumulated about ₹16 lakh at 91% absolute return in December 2025, versus an investor who withdrew his investment just when the market had fallen in April 2020, and incurred 24% losses in his portfolio. Time and behaviour made the difference.
These illustrations also show that, over 10 years, if investors remained invested, they would achieve great returns.
However, that is not the case with most investors. According to a study by AMFI, 40% investors do not stay invested beyond two years and fail to create a meaningful impact on their financial lives.
Often, it has been observed that there is a significant divergence between a fund’s long-term returns and the returns earned by investors.
“This is the Returns Gap, the difference between what markets deliver and what investors actually earn. The gap exists not because markets fail but because behaviour does. It can only be narrowed by following a clear goal-driven investment process and building disciplined habits that keep emotions out and outcomes on track,” says Gahlaut.
(Manik Kumar Malakar is a freelance writer. He covers topics like bonds, personal finance and equity investing.)
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
