Why Market Crashes Can Boost SIP Returns: The Math
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- SIP investors buy more mutual fund units at lower prices during a crash, and the source notes that when markets recover, these extra units can lift long-term XIRR returns.
- XIRR is identified as the most relevant performance measure for SIPs because it accounts for both the timing and amount of staggered cash flows, unlike absolute return or CAGR.
- A worked example shows that if a fund's NAV falls from ₹100 to ₹80, a ₹10,000 monthly SIP buys 125 units instead of 100, and the source frames these lower-priced units as disproportionately boosting future gains.
- A two-investor simulation in the source finds that an investor experiencing a severe year-five crash (ending at NAV ₹200) accumulates 9,886 units worth ₹19.77 lakh over 10 years, versus a steady-market investor's 8,626 units worth ₹17.25 lakh — a ₹2.5 lakh gap on identical ₹12 lakh total contributions.
- Stopping SIPs during a crash means investors forgo buying at discounted valuations and typically resume only after prices have recovered, undermining the very rupee-cost-averaging mechanism that drives long-term XIRR gains.
- The benefit is conditional: the source states crashes initially cause portfolio values and XIRR to decline, and gains only emerge for investors who continue contributions and remain invested long enough for the market to recover.
- Accumulation-phase investors with long horizons — such as those saving for retirement or children's education — are flagged as the group best positioned to convert market declines into stronger future returns.
Why it matters: Indian retail investors who pause SIPs at the first sign of a crash are mathematically forfeiting the one advantage that differentiates staggered investing from lump-sum investing. The source's own simulation shows a disciplined investor can end up with roughly 14% more corpus than a steady-market peer on identical contributions — a gap that only exists if contributions continue through the downturn.
