Why It Makes Sense to Take the SIP Route Now Amidst a Volatile Equity Market

VIX spiked soon after Trump's victory. The surge aligned with the global volatility trends and reflected growing concern in the Indian equity market.

This intensified volatility can be attributed to a variety of global and domestic factors.

According to a recent Reserve Bank of India (RBI) survey, the major near-term risks to market stability are geopolitical conflicts (the uncertainty has been spurred by the fresh tariff threats issued by U.S. President Donald Trump against China and the EU, the persistent Russia-Ukraine conflicts, tensions in the Middle East, etc.), concerns over global growth, inflation, and capital outflows/rupee depreciation.

Other headwinds that are keeping the equities market on edge include disappointing corporate earnings from India Inc. of late, chances of a slowdown in global GDP growth, and extreme climate events.

Considering these risks, the year 2025 is likely to put both the market and investors' resilience to the test.

Now, the elephant in the room is: How can investors navigate such economic turbulence effectively?

The VIX is akin to the fear index, as volatility often evokes negative emotions, particularly in new or first-time investors, deterring them from investing in equity mutual funds.

However, it is essential to understand that volatility is inherent to equity markets and cannot be avoided. Markets never move linearly, there are several peaks and troughs - that's the very nature of the equity market.

You see, while macroeconomic and global factors are beyond your control as an investor, there are strategies you as an investor may adopt to minimise their impact of volatility on your portfolio and even potentially benefit from it.

The key to riding out market turbulence is to understand the situation rationally and devise a strategy that can safeguard your wealth from erosion while evening out the effects of volatility. It is crucial to focus on the long term rather than being swayed by short-term market fluctuations.

A Systematic Investment Plan (SIP) remains one of the most prudent ways to tide through market volatility. While SIP is a mode of investing, it is a strategy in itself.

SIPs, as you may know, offer the following benefits in times of market volatility...

1. Rupee Cost Averaging

By investing at regular intervals, irrespective of market conditions, you purchase more units when prices are low and fewer units when prices are high using rupee cost averaging.

In market conditions where there is high chance of downside risk, SIPs work in your favour with SIPs being potentially triggered at lower NAV and, in turn, allowing you to buy or accumulate more units for the same investment amount.

In other words, SIPs help you average out the purchase price of the equity fund units, reducing the impact of short-term market fluctuations on your investments.

As the market recovers, you potentially stand to with appealing returns.

2. Compounding Benefits

SIPs have the ability to generate compounded returns over the long term. By investing consistently over time, the mutual fund units accumulated potentially begin to clock decent XIRR, enabling the growth of your wealth. The longer the investment period, the greater the potential compounding effect.

[Use PersonalFN SIP Calculator to know the future value of your SIP investments]

3. Easy to Manage

SIPs are beginner-friendly and easy to set up making them an excellent choice for those with little knowledge of market conditions. As an investor you can start SIPs with as little as Rs 500, making it accessible and easy on the pocket.

Recently, SEBI has also proposed the idea of small ticket SIPs of Rs 250 for greater financial inclusion. Having said that, your SIP contribution ought to be meaningful to keep up with inflation and meet your financial goals.

[Read: Is SEBI's Smal Ticket SIP Proposal a Good Idea]

Once linked to your bank account, SIPs operate automatically, eliminating the need for manual intervention. This automated process makes SIPs a convenient way to stay invested over the long term, even amidst market ups and downs.

4. Makes Timing the Market Irrelevant

SIPs eliminate the need to time the market. Timing the market can be hazardous to your wealth and health. Instead focusing on 'time in the market' with SIPs could potentially help you to build wealth by selecting the best mutual fund scheme to invest. By making regular investments, SIPs can you manage volatility.

To know more about SIPs and its benefits, watch this video:

Recognising the aforesaid traits and benefits, SIPs have gained significant popularity among Indian mutual fund investors.

As you can see in Graph 3, SIP contributions reached a record high of Rs 26,459 crore in December 2024, up from Rs 25,320 crore in the previous month.

For these reasons, total SIP contributions have touched an all-time high of Rs 2.11 trillion so far in FY25. The graph below shows that every fiscal year since the COVID-19 pandemic, the SIP contributions have been higher. The total SIP AUM today stands at Rs 10.72 trillion.

Despite CY2024 being a particularly volatile year for the markets, the net inflows via SIPs inflows have remained persistent. By and large, and wisely so, investors have continued with their SIPs.

The new SIPs registered have outpaced those discontinued so far in FY25.

In CY2025 the following factors would weigh on the market and inflict volatility:

• Trumponomics 2.0 with its protectionist policies

• Trade wars

• Geopolitical tensions in many parts of the world

• The ongoing Russia-Ukraine war

• Increasing chances of geoeconomic fragmentation

• Chances of inflation moving due to higher tariffs

• Limited room for central banks to cut rates

• Foreign Direct Investment (FDI) flows slowing down

• Corporate earnings entering the slow lane from Q2FY25

• Higher bond yields

• Weak rupee compared to the greenback

• Potentially Foreign Portfolio Investors (FPIs) pulling out money

• ...and more!

That being said, don't think of pausing/discontinuing SIPs due to intensified market volatility.

While reviewing investments periodically is a smart practice, prematurely halting SIPs would put brakes on the process of power of compounding with the missed opportunities.

SIPs are meant to help you achieve long-term financial goals and build wealth steadily over time. The power of compounding works best when investments are held for the long term. Hence, if you are already SIP-ping into some of the best and most suitable mutual fund schemes, don't commit the mistake of stopping them as it could lead to a significant loss of potential growth.

While it is natural to feel uncertain during periods of high volatility, consistently making SIP contributions would yield better over the long-term.

Consider Stepping Up Your SIPs now if you have received a year-end bonus and/or would be receiving an appraisal.

Doing so helps you gradually scale up your investments in line with your financial growth, making it an ideal strategy to boost wealth creation over time.

You can either increase the SIP amount by a fixed percentage, such as 10%, or by a specific amount, like Rs 500. Additionally, you can determine the interval for these increments, such as every 6 months or 1 year. The choice is yours and must be executed thoughtfully.

For greater financial control, you can also set an upper limit to ensure that the increased contributions do not exceed your set investment budget.

A performance appraisal or year-end bonus is an excellent opportunity to step up your SIP contribution in the endeavour to build wealth and potentially accomplish the envisioned financial goals sooner.

To Conclude...

As the Indian equity market is likely to remain volatile in the near term, it is crucial for you, the investor to remain patient and avoid making impulsive decisions, such as discontinuing or redeeming their investments. SIPs, as mentioned, can help mitigate the market volatility (i.e. rupee-cost average), and potentially compound hard-earned money.

In the current scenario, it's wise to moderate your return expectations and opt for a strategic mix of active and passive funds in your portfolio. It also makes sense to own some of the best Multi Asset Allocation Funds now in the portfolio.

To maximise the benefits of SIPs, choose worthy mutual fund schemes that align with your risk tolerance, investment horizon, and financial objectives.

[Read: The Ultimate Guide to the Best SIP Plans for 2025]

A thoughtful and disciplined investment approach lays the foundation for financial success and achieving your envisioned goals.

Happy investing!

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Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.