Why Falling Markets Are Good News for SIP Investors (Sequence of Returns Explained)

Last Updated on April 23, 2026 by Hemant Beniwal

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Benjamin Graham

Here is a question I ask every investor who tells me the market is performing badly: badly compared to what?

If you are a long-term accumulator – someone saving for retirement 15-20 years away – a falling market is not a problem. It is an opportunity. Every SIP instalment buys more units at lower prices. Every correction lowers the average cost of your entire portfolio.

The sequence of returns matters enormously – but not in the way most investors think.

The Four Sequences – Which Is Actually Best?

Consider four possible return sequences over a 5-year investment period. The same total return, distributed differently across years:

Sequence A: steadily rising returns every year, no correction. Sequence B: strong positive returns followed by a sharp decline, then recovery. Sequence C: a mix of up and down years, gradually trending upward. Sequence D: deep decline in the first 2 years, then strong recovery.

If you are a lump sum investor who put in all your money at the start, Sequence A is best – your money was always working at its highest level. Sequence D is worst – you sat through painful losses before recovery.

But if you are a SIP investor adding the same amount every month, the result flips. Sequence D is actually the best outcome. The early decline means you bought a large number of units at low prices. By the time the recovery arrives, you have a much larger unit base than if markets had risen steadily throughout.

This is the mathematical reality that most investors do not internalise until they actually experience a correction with their SIP running.

Why Bad News During a Bull Market Is Not Good

There is an uncomfortable corollary to this principle. If you are buying SIPs during a relentlessly rising market with no corrections, you are building a large corpus, but at increasingly higher average costs. The same total return spread differently – with most of the gains compressed into the last few years – produces a smaller terminal corpus than a volatile market that corrected and recovered over the same period.

This is counterintuitive to most investors. A steady climb feels comfortable. A volatile, correction-prone market feels anxious. But for a disciplined SIP investor, the volatile market – provided it trends upward in the long run – is actually the preferred environment.

The Critical Distinction: Accumulator vs. Retiree

Everything above applies to an accumulator – someone who is investing and not yet withdrawing. The situation reverses completely for a retiree.

A retiree who faces a 30-40% market correction in the first two years of retirement, while withdrawing Rs 1-1.5 lakh per month from a corpus of Rs 2 crore, faces a permanent and severe problem. They are forced to sell units at depressed prices to fund current expenses. When the market recovers, they have fewer units participating in the recovery. The corpus may never fully recover, even if the market eventually does.

This is sequence of returns risk in retirement – and it is the opposite of what the same market correction does to an accumulator. Identical market events, opposite impacts, depending solely on which phase of the financial lifecycle you are in.

For retirees, managing sequence of returns risk requires a different approach: maintaining 1-2 years of expenses in liquid/conservative instruments so that withdrawals during a correction come from the safe bucket, not from selling equity at the bottom. This is the core logic behind bucket strategies in retirement planning.

The News Cycle and the Long-Term Investor

Every market correction arrives with a narrative. 2008 was the global financial crisis. 2011 was Euro debt concerns. 2015-16 was China slowdown fears. 2018 was NBFC contagion. 2020 was COVID-19. 2022 was inflation and rate hikes.

In each case, the financial media found compelling reasons why “this time is different” – why the recovery that had followed every previous correction might not come this time. In each case, investors who stayed invested through the noise and continued their SIPs were rewarded.

This is not because markets always recover quickly. Sometimes they do not. The March 2020 recovery was unusually fast. The 2011-12 correction took several years to fully recover. The point is not the timeline of recovery – it is that long-term equity returns have been positive across every decade-long window in India’s market history, and that attempting to time entry and exit based on news consistently destroys value relative to staying invested.

Napoleon’s definition of a military genius: the person who can do the average thing when everyone around him is losing their mind. The same applies to investing.

Read: How Investment Horizon Affects Your Returns and Risk

If your SIP is running and the market is falling, the correct emotional response is equanimity. The correct financial response is to keep investing. These are the same response.

Do the right thing and sit tight.