If you redeem your investments when prices have fallen sharply, you will be selling at low prices and may make a permanent loss. On the other hand, if you remain patient and remain invested, you give your investment the time it needs to recover, says Dwaipayan Bose.
The Nifty is down 15 per cent from its 52-week high, while small caps are down nearly 25 per cent.
The uncertainty caused by the Trump administration's trade policies has dragged global equity indices down due to increased fears of recession.
China and the European Union have responded with retaliatory tariffs on US exports.
The Indian government on the other hand has adopted a more pragmatic stance, seeking resolution of bilateral trade issues with the United States through negotiations.
With considerable amount of uncertainty in the near term and global risk-averse sentiments, the market may continue to be volatile in the short term.
Cyclical nature of markets
Equity markets are cyclical; ie, cycles of bull and bear markets repeat every few years.
Historical data shows that we have one or more major (more than 15 per cent) market corrections every five years (see below).
Source: NSE, Advisorkhoj Research, as on March 31, 2025.
Disclaimer: Past performance may or may not be sustained in future and is not a guarantee of any future returns. Investors should not consider the same as investment advice.
Please note the illustration above is purely for investor education purposes and should not be taken as financial or investment planning recommendations. Consult with your financial advisor before investing.
Needless to say the market eventually recovered after all these corrections (the last correction, though, is still continuing). However, the magnitude of the drawdown (the fall in investment value after one has invested), drawdown period (from peak to trough) and recovery period differed based on the nature and severity of the event.
Importance of discipline in times of volatility
Psychological biases often influence decisions made by investors.
Greed and fear are the two most common behavioural biases and influence investment decisions. Irrational euphoria in bull markets and panic in bear markets cause great harm to your long-term financial interests.
If you redeem your investments when prices have fallen sharply, you will be selling at low prices and may make a permanent loss. On the other hand, if you remain patient and remain invested, you give your investment the time to recover (see the table above).
Investing through SIP helps you stay disciplined
Through SIP, you invest a fixed amount every month in a mutual fund scheme of your choice. By investing fixed amounts every month, you do not have to time the market since you are investing at all prices, both low and high. This is known as rupee cost averaging.
Once you start your SIP, you simply need to remain disciplined till you achieve your financial goal.
The chart below shows the growth of a Rs 10,000 monthly SIP in Nifty 50 over the past 25 years (since January 1, 2000). As discussed earlier, we had many deep corrections and bear markets in the last 25 years.
Through a monthly SIP of Rs 10,000 in Nifty 50 (cumulative investment of Rs 30.4 lakh) for 25 years, you could have accumulated corpus of Rs 2.55 crore as on March 31, 2025. This shows the power of over long investment tenures. The annualised SIP return (XIRR) over this period was 14.3 per cent.
Source: NSE, Advisorkhoj Research, as on March 31, 2025.
Disclaimer: Past performance may or may not be sustained in future and is not a guarantee of any future returns. The investors should not consider the same as investment advice.
Please note the illustration above is purely for investor education purposes and should not be taken as financial or investment planning recommendations. Consult with your financial advisor before investing.
Higher probability of getting consistent returns over long investment tenures
We calculated the returns of each SIP instalment over the last 25 years (for Nifty 50 Total Return Index (TRI), a benchmark to determine the actual returns for the underlying assets of a mutual fund).
The chart below shows how returns were distributed for all the SIP instalments (300+ instalments). You can see that the CAGR returns of 75 per cent of the SIP instalments were in the 10-15 per cent range.
Source: NSE, Advisorkhoj Research, as on March 31, 2025.
Disclaimer: Past performance may or may not be sustained in future and is not a guarantee of any future returns. The investors should not consider the same as investment advice.
Please note the illustration above is purely for investor education purposes and should not be taken as financial or investment planning recommendations. Consult with your financial advisor before investing.
How rupee cost averaging is a silent hero
The chart below shows the annualised return of each SIP instalment in Nifty 50 TRI over the past 25 years. You can see the rupee cost average in action here.
Instalments near market bottoms and early recovery phase of the market gave more than 15 per cent returns. SIPs take advantage of market volatility, reducing the average cost of acquisition of units. This boosts overall portfolio returns.
Source: NSE, Advisorkhoj Research, as on March 31, 2025.
Disclaimer: Past performance may or may not be sustained in future and is not a guarantee of any future returns. The investors should not consider the same as investment advice.
Please note the illustration above is purely for investor education purposes and should not be taken as financial or investment planning recommendations. Consult with your financial advisor before investing.
Increase your SIPs to reach your goals faster
A SIP is not only for smaller amounts.
In fact, with a larger SIP investment, you can get reach your goals much faster (see the chart below).
If you can increase your SIPs at a time when the market is down, you can also take advantage of lower prices.
Source: Advisorkhoj, AMFI.
Mean CAGR returns considered for illustration is 12.93 per cent by taking mean of 10-year rolling returns between June 1, 2013, and May 30, 2023 of Nifty.
SIP investments on first day of every month for the stated periods have been considered for this illustration.
SIP returns are calculated on CAGR basis.
The above illustration is provided as per AMFI Best Practice Guidelines Circular No 109 dated November 1, 2023, and amended from time to time to define the concept of power of compounding.
Past performance may or may not be sustained in future and is not a guarantee of any future returns.
Investors should not consider the same as investment advice.
Please note the illustration above is purely for investor education purposes and should not be taken as financial or investment planning recommendations. Consult with your financial advisor before investing.
Use SIP step up
Salaried investors usually get an annual increment. Increments are based on a number of factors, eg inflation, company's performance, employee's performance, etc. Even though investors' income goes up, their SIP often remains fixed.
SIP top up is a mutual fund facility whereby you can increase the SIP amount by a predetermined rate or additional amount at stipulated intervals.
The chart below shows the growth of Rs 10,000 SIP in Nifty 50 TRI with (10 per cent annual step up) and without step up over the past 25 years since January 1, 2000.
You can see that with an incremental cumulative investment of Rs 37 lakh through SIP step up, you could have created an additional corpus of Rs 1.5 crore.
SIP top up is particularly beneficial to those investors who want to build a corpus in a shorter time frame.
Source: NSE, Advisorkhoj Research, as on March 31, 2025.
Disclaimer: Past performance may or may not be sustained in future and is not a guarantee of any future returns. The investors should not consider the same as investment advice.
Please note the illustration above is purely for investor education purposes and should not be taken as financial or investment planning recommendations. Consult with your financial advisor before investing.
STP can be smart investment options
If you have lump sum funds which you want to deploy in equity funds but are concerned about continuing volatility, then you can invest it in a low-risk debt fund and transfer fixed amounts at regular intervals (weekly, fortnightly, monthly, etc) to the equity fund through a systematic transfer plan (STP).
Like SIP, STP also takes advantage of volatility through rupee cost averaging.
Conclusion
Equity as an asset class is intrinsically volatile. However, there are periods where investors can face extreme volatility which can test their patience, especially for new investors who haven't experienced bear markets.
We are going through such a period now and we do not know how long it will last.
In this article, we discussed volatility and how to deal with it.
Investors should understand the difference between investment loss and volatility. You are likely to make a loss in this market if you redeem but, if you remain invested, the market will eventually recover.
Systematic investing will in fact help you benefit from volatility. You should be patient, continue your SIPs and take advantage of STP if you have lump sum funds.
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Disclaimer: This advisory is meant for information purposes only. This advisory and the information in it does not constitute distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article or an attempt to influence the opinion or behaviour of the investors/recipients.
Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.
Dwaipayan Bose leads content production and mutual fund research at 
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