Every investor who has ever paused a SIP during a market downturn has heard the same warning – stopping your SIP is the biggest mistake you can make. The advice is sound. But it may be treating the symptom rather than the disease.
Consider what actually causes an investor to panic and stop. Typically, they started without a clear goal, invested an amount too small to move the needle, chased a top-performing fund, and expected returns that the market was never going to deliver. The downturn didn’t create the problem, it revealed one that was already there.
Here’s the evidence for why that matters: according to an analysis of Nifty 50 SIP data from FY05 to FY26 by Anand Rathi Wealth, 8% of monthly SIP start dates produced first-year XIRRs below -20%, averaging -36.5%. Another 13% delivered negative returns between 0% and -20%. Yet investors who stayed invested through those painful early years went on to earn average five-year SIP XIRRs of 11.8% and 12.9% respectively. The market wasn’t the problem. Quitting was.
What made investors quit? In almost every case, the fault lines were laid on day one.
Mistake No. 1: Starting an SIP without a goal
Ask most investors why they started a SIP and the answer tends to be some version of ‘for the long term’ or ‘for wealth creation.’ These are not goals, they are intentions, and the difference matters enormously.
A goal has a number attached to it and a deadline: funds for a child’s higher education in 15 years, a down payment on a house in seven years, a retirement corpus by age 60. Each of these requires a different SIP amount, a different fund type, and a different tolerance for volatility. An investor who conflates all of them into ‘long-term wealth creation’ has no basis for deciding whether their SIP is on track — or for staying the course when it isn’t.
Abhijit Shah, Chief Marketing & Digital Business Officer, ICICI Prudential AMC, says: “The most common day-one mistakes we see are, first, not linking the SIP to a specific financial goal. Second, starting with a SIP amount that is too low relative to the goal and not stepping it up as income grows. Third, selecting funds based largely on recent performance rather than on suitability to one’s time horizon and risk profile. SIPs work best when they are backed by goal clarity, realistic planning and investment discipline.”
Aditya Mulki, CEO of Navi AMC, makes the same point more bluntly. The real damage, he says, begins at inception.
“Stopping SIPs during a downturn is damaging, but it’s often a symptom, not the root cause. The real damage starts at inception when investors commit to a SIP without aligning it to a goal, time horizon, or risk capacity. Common day-one mistakes include picking funds based on recent past returns, underestimating volatility, setting unrealistic tenure, and treating SIPs as a guaranteed-return product rather than a market-linked, disciplined investment habit requiring patience through cycles,” says Mulki.
The practical fix is deceptively simple: before starting a SIP, answer one question — what exactly am I investing for? The goal should precede the investment, not follow it.
Mistake No. 2: A big goal, a small SIP amount
The second mistake follows logically from the first. When investors don’t anchor their SIP to a specific goal, they typically set the amount based on what feels comfortable — not what the goal actually requires.
Take a hypothetical: an investor wants a retirement corpus of ₹2 crore in 20 years. Starting a SIP of Rs 2,000 or Rs 3,000 and holding that amount for two decades will likely leave a significant gap, regardless of market performance. The math was always against the goal; the market just makes the shortfall visible.
The compounding effect of incrementally stepping up a SIP amount — even by 10% each year — can make a substantial difference to the final corpus. Yet most investors treat the initial SIP amount as fixed for years, even as their income grows.
Abhijit Shah says, “They should arrive at an SIP amount that is aligned to the goal rather than just choosing a convenient starting number. It is equally important to review and step up the SIP amount periodically as income rises.”
According to Amitabh Lara, Executive Director, Anand Rathi Wealth: “It is important for investors to focus on three key essential aspects before starting an SIP. First, start with clearly defined investment objectives — whether investing to fund a child’s education, buy a home, build a retirement corpus, or create long-term wealth. Secondly, define the investment tenure, as the time horizon plays a crucial role in selecting suitable investment products and managing market volatility.”
The sequence matters: define the goal, set the tenure, then work backwards to the SIP amount needed — not the other way around.
Mistake No. 3: Choosing a fund based on recent returns
Few investing errors are as widespread or as well-documented as chasing recent performance. A fund, sector, or theme delivers strong returns for a year or two; investors pile in; returns revert to mean; investors feel misled and exit. The cycle repeats.
The damage is two-fold. First, investors often enter near the peak of a run, setting themselves up for underperformance almost from the start.
Second, the expectations formed during the selection process — implicitly based on recent returns — become a benchmark the fund can rarely sustain. When returns disappoint, investors don’t just underperform the market; they disrupt the compounding process that made the SIP worth starting in the first place.
Shah of ICICI Prudential AMC says, “Performance chasing is one of the most common mistakes investors make when starting SIPs. The challenge is that recent outperformers may not necessarily remain future outperformers. If returns moderate or markets go through a correction, investors who entered with very high short-term expectations may become disappointed and either stop their SIPs or switch strategies midway. That disrupts the compounding process, which is the real strength of SIP investing.”
Aditya Mulki, CEO, Navi AMC adds, “Chasing recent high returns often means entering near a peak, setting expectations a strategy cannot sustain. When markets normalize, investors feel ‘let down,’ prompting premature exits, locking in losses, and forfeiting the compounding benefit SIPs are designed to deliver.”
Lara of Anand Rathi Wealth calls this recency bias — the tendency to assume that recent category leaders will continue to outperform. Markets, he notes, move in cycles, and periods of strong performance are typically followed by moderation or underperformance. His firm’s Nifty 50 data, cited in the introduction, puts the cost of recency bias in concrete terms: investors who abandoned SIPs in the first year of negative returns forfeited average five-year returns of 11–12% that those who stayed invested went on to earn.
Mistake No. 4: Treating an SIP like a fixed deposit
The fourth day-one error is less about a specific decision and more about a fundamental misunderstanding of what an SIP is. Many investors start SIPs with expectations more suited to a fixed deposit — stable, predictable annual returns, with the investment value only going up.
Since SIP returns are market-linked, they fluctuate. A year of negative returns in early SIP tenure is not a warning signal; it is an ordinary feature of equity investing. The Nifty 50 data cited above shows that over 20% of monthly SIP start dates produced negative returns in the first year. Investors who treated this as evidence of failure — rather than as the very condition that creates long-term buying opportunity — were reacting to a scenario they should have been prepared for at the outset.
“Common day-one mistakes include underestimating volatility, setting unrealistic tenure, and treating SIPs as a guaranteed-return product rather than a market-linked, disciplined investment habit requiring patience through cycles,” Mulki noted.
The fix is not more reassurance — it is better onboarding. An investor who understands from day one that their SIP will produce negative XIRRs in some early periods, and that this is a structural feature rather than a failure, is far more likely to stay invested through the periods that eventually produce the 11–12% long-run returns the data shows are available.
Before you hit ‘start’: 3 things to get right
The common thread across all four mistakes is that they are made before the first SIP instalment is debited. Which means they can be fixed before they start.
First, define the goal and investment horizon clearly. Whether the target is a child’s education, a home purchase, or retirement, the SIP strategy — fund type, amount, tenure — should be built around a specific number and timeline, not a general aspiration.
“Define the goal and time horizon clearly, which helps in determining suitable asset allocation. Then assess genuine risk capacity — not just risk appetite — to ensure the SIP survives volatile phases,” according to Mulki.
Second, calculate the SIP amount the goal actually requires — then review and step it up as income grows. A SIP that fits the budget but not the goal is a plan to fall short.
Third, select funds based on suitability — risk profile, investment horizon, financial objective — rather than recent returns. Diversification across market cap segments and investment styles, as Amitabh Lara recommends, can help smooth performance across market cycles.
Shah further says that fund selection should be based on suitability — such as risk appetite, time horizon and financial objective — rather than recent returns alone.
Summing up…
Stopping a SIP during a market correction is a mistake — but in most cases, it is the last in a sequence of mistakes that began on day one. An investor who started with clear goals, the right amount, appropriate fund selection, and realistic return expectations is far less likely to lose conviction when the market turns. They already know what the volatility is for.
The real SIP mistake isn’t pressing ‘stop’ when the market falls. It’s pressing ‘start’ without a plan — and discovering the consequences years later, when there is less time to recover.
Disclaimer: This article is intended for informational and educational purposes only and should not be construed as investment advice. Mutual fund investments are subject to market risks. Investors should carefully assess their financial goals, risk tolerance, and investment horizon before making any investment decisions. Past performance is not indicative of future returns. Consider consulting a qualified financial advisor before investing.
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