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Investor Psychology

Why Investors Stop SIPs at Exactly the Wrong Time — And How to Not Be One of Them

April 5, 2026•10 min read•By PlanivestFin Team

TL;DR

  • The most common and costly SIP mistake is stopping during a market crash — precisely when rupee cost averaging is buying the cheapest units of your entire investment cycle
  • The psychology behind this is well understood: loss aversion makes losses feel twice as painful as equivalent gains, and recency bias makes a 3-month correction feel like a permanent new reality
  • Investors who stopped SIPs during the COVID crash in March 2020 and restarted in late 2020 missed the cheapest buying window of the decade — and ended up with significantly lower corpuses than those who did nothing
  • The current Nifty correction of 10%+ from recent highs is a live example: investors stopping SIPs now are stopping at exactly the wrong moment
  • The structural fix is simple: automate the SIP so no human decision is required during the panic

Introduction

In March 2020, the Sensex fell 38% in roughly 40 days. It was the fastest crash in Indian market history. The news was unambiguous — COVID-19 was spreading globally, no one knew how long or how deep the economic disruption would be, and markets were pricing in a genuine unknown.

A large number of SIP investors stopped their investments during those weeks. The logic felt sound: why keep putting money into a falling market when you do not know where the bottom is?

What followed was a recovery so sharp that markets were back at pre-COVID levels within 8 months — and 60% above those levels within 18 months. The investors who kept their SIPs running through March and April 2020 accumulated their cheapest units during those two months. Those units drove their returns over the next two years.

The investors who stopped missed the cheap units and restarted when sentiment had turned positive — meaning they resumed buying at significantly higher prices. The same fund, the same overall market, opposite outcomes based on one decision made during six weeks of fear.

This pattern has repeated itself in every major correction in Indian market history. Understanding why investors make this mistake is the first step to not repeating it.

The Psychology That Drives Bad Decisions During Crashes

Loss aversion — losses hurt more than gains feel good

Decades of behavioural economics research, starting with Kahneman and Tversky's work on prospect theory, consistently shows that the emotional pain of losing a given amount is approximately twice as intense as the pleasure of gaining the same amount.

In practice: if your SIP portfolio is ₹5 lakh and the market falls 20%, your portfolio is now worth ₹4 lakh. You have lost ₹1 lakh in paper value. But if you had invested ₹3.5 lakh over the life of the SIP, you are still sitting on a ₹50,000 gain — your portfolio is worth more than you put in. Loss aversion makes the ₹1 lakh paper loss feel overwhelming and the underlying gain feel irrelevant. The result is an impulse to stop investing to "prevent further losses," even when stopping is exactly the wrong move.

Recency bias — the recent past feels like the permanent future

After two or three months of consecutive market falls, the human brain begins to treat the downward trend as the new normal. The 10-year trajectory of markets becomes irrelevant; the last 90 days become the dominant data point. Investors who would never have predicted a crash with certainty before it happened suddenly become convinced that the fall will continue indefinitely once it is underway.

This is recency bias. It explains why the peak fear — and the peak SIP stoppage rate — occurs not at the beginning of a crash but several weeks in, when the fall has already happened and recovery is statistically closer than investors realise.

The herd — everyone selling feels like a signal

When your colleagues are discussing selling, financial news channels are running crash graphics, and your portfolio app is showing red every day, the pressure to conform is real. Social proof is a powerful behavioural driver — the sense that "everyone else knows something I don't" amplifies the impulse to exit.

The problem is that in markets, the crowd is systematically wrong at turning points. The peak of selling — when the herd is most unified in exiting — is typically within weeks of the bottom. FII selling of ₹1.23 lakh crore in March 2026 is a case in point: institutional investors were reducing India exposure for risk management reasons specific to their portfolios, not because Indian equity fundamentals had structurally deteriorated.

What the Data Actually Shows

Looking at 10-year rolling SIP periods on the Sensex from 1990 onwards — covering multiple crashes, geopolitical events, recessions, and global crises — there is no 10-year period that delivered negative returns. The worst 10-year period started at the peak of the 2000 dot-com bubble and still delivered approximately 8-9% XIRR. The average across all periods is around 14%.

This does not mean every 10-year period felt comfortable. The 2008 crash, which took the Sensex from 21,000 to 8,000, required investors to sit with paper losses of 50-60% for 18 months before recovery began. The investors who stayed through that period and kept investing during the crash ended up with dramatically more units at 8,000-12,000 NAV levels — units that were worth 2-3x their purchase price within 5 years.

The investors who stopped during the crash crystallised their existing paper losses into real missed opportunities and then restarted at higher prices during the recovery. The cost of this pattern — stopping during the crash, restarting after recovery — is typically a 3-5 percentage point reduction in XIRR over a 10-year period. On a ₹10,000 monthly SIP, the difference between 14% XIRR and 10% XIRR over 15 years is approximately ₹25-30 lakh in final corpus.

Why the Current Correction Is a Live Example

The Nifty has fallen 10%+ from its recent highs. The causes are well documented — the Iran-US conflict has pushed crude oil to $100-115 per barrel, FIIs have sold a record ₹1.23 lakh crore in a single month, and the rupee has been under pressure. These are real headwinds.

But here is the other side of the same data: geopolitical-driven market corrections have historically resolved within 3-6 months as uncertainty clears. ICICI Direct's analysis of six major geopolitical events since 1990 found average 3-month returns of 28% from the market bottom. The investors who were putting SIPs into Nifty index funds at 22,000-23,000 in March and April 2026 are buying units at prices significantly below where they were six months ago.

If you are currently invested and your SIP is running, the best thing you can do is nothing. Not check your portfolio every day, not read the crash articles (except this one), and not have a conversation with yourself about whether to pause for a few months.

The mechanism of SIP — buying more units when prices are lower — is working in your favour right now. Stopping it is the only way to break the mechanism.

The Structural Fix: Remove the Human Decision

The reason automation is so powerful for SIPs is not convenience — it is decision elimination.

When a SIP is set up as an auto-debit on the day after your salary credit, no human decision is required for it to continue. The money moves automatically. You would have to actively log in to your mutual fund platform and cancel or pause the SIP to stop it. During a crash, the extra friction of actively cancelling is sometimes enough to prevent a bad decision made in a moment of fear.

Compare this to manually investing each month. If the decision to invest requires conscious action every month, the months when you are most afraid are the months when the conscious action is most likely to be overridden by anxiety. Manual monthly investment is structurally fragile during exactly the periods when consistency matters most.

Set the SIP to auto-debit. Direct your mental energy toward not cancelling it rather than toward actively continuing it. The asymmetry of effort works in your favour.

What to Actually Do During a Market Crash

The honest answer is: less than you think.

Check your SIP is still running — if it is on auto-debit, it will be. Check it once to confirm, then leave it.

If you have surplus savings that are sitting in a savings account earning 3-4%, a falling market is a reasonable time to deploy some of it into a lump sum top-up — not from your emergency fund, not from money you need in the next 3 years, but from genuinely idle cash. You are not buying at the absolute bottom, but at 10%+ off recent highs you are buying at better prices than you were 6 months ago.

Reduce your portfolio check frequency. Daily portfolio checking during a crash does not give you actionable information — the market will do what it does regardless of how often you look. What daily checking does do is maintain a constant state of anxiety that makes bad decisions more likely. Check quarterly.

Do not read the real-time market news. The financial media's job during a crash is to keep you engaged with content about the crash. Engagement is maximised by fear. The information you need — whether your SIP is running — takes 30 seconds to check. Everything else is noise that serves the media's interests, not yours.

The One Question Worth Asking During a Crash

Before stopping a SIP, ask one question: has the goal this SIP is funding changed?

If you started a SIP for your retirement in 20 years and markets have fallen 10%, your retirement goal has not changed. The timeline has not changed. The fact that equity markets are volatile over months while delivering returns over decades has not changed. Nothing about the situation that motivated the SIP has changed. The only thing that has changed is the current price of the units you are buying — and that change is in your favour.

If the answer to "has the goal changed?" is no, the SIP should continue. The only legitimate reason to stop a SIP is if the underlying goal has been achieved, if the timeline has shortened significantly (within 2-3 years now), or if you have a genuine financial emergency that requires the monthly cash flow. Market volatility by itself is not a reason — it is the condition under which SIPs are designed to operate.

Frequently Asked Questions

My portfolio is down 15% over the past year. Is it normal and should I be worried?

A 15% portfolio decline after a year of SIPs in an equity fund during a market correction is completely normal and expected. The paper loss is not a realised loss — it only becomes real if you sell. More importantly, your most recent SIP instalments have been buying units at the current lower prices, which will appreciate when markets recover. The question to ask is not "should I stop?" but "when do I need this money?" If the answer is 7+ years from now, the current level is irrelevant to your outcome.

What if markets fall another 10-15% after I continue my SIP?

Then you buy even more units at even lower prices. Each additional 10% fall means your next few SIP instalments purchase proportionally more units. The SIP mechanism benefits from continued falls as much as from a single bottom. The scenario that hurts you is not a further fall — it is stopping now and then restarting after recovery. That sequence guarantees you miss the cheapest units of the cycle.

I stopped my SIP 3 months ago. Should I restart?

Yes, immediately. The cost of the 3-month pause depends on how much markets have moved during that time, but the more important question is the next 10 years — not the past 3 months. Restart the SIP today at the same or slightly higher amount than before. Do not try to compensate by timing a lump sum at the "right moment" — just restart the regular monthly investment and let it run. Use the SIP Calculator to remodel your corpus projection with the current NAV as the starting point so you have a clear target to stay committed to.