How investors behave: market falls, long term, and returns that mislead
What really happens in a market fall, what stopping an SIP does and does not do, how long long term is, and why past returns mislead.
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A market fall is the part of investing nobody rehearses. The arithmetic of a mutual fund is simple enough to learn in an afternoon. Sitting still while the value on your screen drops is not.
This page answers the questions people ask when they are worried, and the ones they ask later about returns that do not match. It names no scheme and tells you nothing to do.
When the market falls
What actually happens when the market falls?
The shares and bonds inside your scheme are valued every business day at whatever price they would fetch that day. When those prices drop, the NAV drops, and the value of your units drops with it. Nothing has been taken out of your folio and no units have left it.
The same units are being priced lower. You still hold the same slice of the same pool of companies you held last week.
That mechanical answer matters, because the thing that changed is a price, not your ownership.
Falls are a feature of how equity is priced, not a fault in the scheme you chose. Prices move on news, on money leaving the market, on worry, and sometimes on nothing anyone can name.
How much can I lose?
Nobody can tell you the limit. An equity scheme can fall a long way, and it can stay down for a while after it has stopped falling. Debt schemes usually move less, and less often, but they are not immune either.
There is no floor written anywhere, which is the real reason money you will need soon has no business being in an equity scheme at all.
The riskometer gives a sense of how much the value may swing. It is not a prediction, and nothing on a factsheet caps your loss.
Why does a fall feel bigger than it is?
Two things make a fall feel worse than the number on the screen. The first is that losses land harder than gains of the same size: most people feel a drop in value far more sharply than a rise.
The second is that a fall arrives all at once, in headlines, while a recovery, if it comes, arrives quietly across many ordinary days that nobody reports on. One is an event. The other is the absence of events.
So the feeling and the fact come apart. The feeling says you must respond now. The fact is a price that will be a different price tomorrow.
When will it recover?
Nobody knows, and anyone who gives you a date is guessing. Recoveries are not scheduled, and nobody rings a bell at the bottom. Falls have been followed by recoveries, but “at some point” is the whole difficulty: it has sometimes been quick and sometimes slow, and is only ever obvious afterwards.
This is why a holding period is better settled before you invest than during a fall. If the money is needed on a fixed date, the recovery you are waiting for may not arrive in time.
Stopping, pausing and waiting
What happens if I stop my SIP when the market is down?
Stopping an SIP in a fall does one specific thing. It ends the instalments that would have bought units at the lower prices. The units you already hold stay exactly where they are and keep moving with the market. Stopping does not protect what you already own; it switches off the buying.
That is the opposite of how it feels. It feels like stopping the bleeding. Mechanically it stops the purchases and leaves the exposure untouched.
Switching the SIP off
A decision about future instalments.
No new units are bought. Everything already in the folio stays exactly as it is.
Selling units
A decision about the money already invested.
The holding itself is reduced, at the price of the day you sell.
They are two different choices, and people often make the second while believing they have made the first.
If the instalment itself has become unaffordable, because of a job change, a medical bill or a loan EMI, that is a cash-flow reason and an entirely ordinary one.
Should I wait for the market to settle before I start?
Waiting is itself a position. While you wait you are holding cash, and you are implicitly expecting the price you get later to be better than the price today. Sometimes it is.
The difficulty is that “settled” is only visible afterwards. The days that feel calmest are not reliably the cheapest, and people who wait for comfort tend to start once the comfort has already shown up in the price.
None of that says start today. It says that waiting is a choice carrying its own risk, not a neutral place to stand while you think.
What if I actually need the money soon?
Then the question is not really about the market. Money you need within the next year or two, sitting in an equity scheme, is a timing problem, and a fall has simply shown you where the problem was.
Selling at a loss to meet a real need is sometimes sensible, and nobody should make you feel foolish for it. Selling because the number frightened you, when the money is needed nowhere in particular, is a different situation. Telling those two apart honestly is the useful work here.
Time and holding periods
How long is long term, actually?
Scheme literature often treats five years or more as long term for equity. The number that matters, though, is the one in your own situation: the date you will need the money.
A workable way to put it: equity money should be money you can leave alone through a full stretch of falling and rising prices, without knowing how long that stretch will take. If you cannot honestly say you could leave it for something like seven to ten years, the holding period is doing the work of a guess.
A longer horizon
Room to sit through a bad stretch without needing it to end by a particular date.
A shorter horizon
Not a failing. It belongs in schemes where the value moves less — and it moves less in both directions.
Does holding for longer make a loss impossible?
No. A longer holding period gives a bad stretch more time to be followed by something else, but it is not a promise of anything, and nobody is permitted to describe it as one. The possibility of ending with less than you put in does not disappear because you waited.
What a longer period does change is the weight of any single bad stretch within the whole journey. A sharp fall in year one is a very large part of a two-year holding and a much smaller part of a fifteen-year one.
Numbers that mislead
Why do past returns mislead?
Because a past return is one number summarising one particular stretch of time, and the stretch was chosen, by you, by a website, or by whoever drew the chart. Move the start date and the number changes. Move the end date and it changes again.
A single figure also tells you nothing about how the journey felt. Two very different experiences, one smooth and one with a frightening drop midway, can finish in the same place and print the same number.
A past return describes a period that is over. It is not a property of the scheme and it is not a forecast.
Why is the number in my app not the same as what I have made?
Because “what I have made” can mean several different things, and apps, statements and spreadsheets do not all show the same one.
Current value
What your units are worth today.
Not a return at all.
Absolute gain
Current value minus what you put in.
For one lumpsum it reads naturally; for an SIP it flatters or understates, depending on when the money went in.
An annualised figure
The result restated as a yearly rate.
More than one method exists, and for money paid in on many different dates the one that fits is XIRR, which accounts for each instalment’s own date.
That third item is why two screens disagree. An instalment paid last month has been invested for a month; one paid six years ago has been invested for six years. Any single annual figure has to decide how to weigh them, and different methods decide differently.
None of this means a screen is wrong. It means you should know which of the three you are looking at before you draw any conclusion from it. You can work the same arithmetic yourself, with your own assumptions, using the free calculators on this site.
Why does my friend’s experience of the same scheme differ from mine?
Because the two of you did not buy the same thing, even though the scheme is the same. Your friend’s units were bought on their dates, at their NAVs, in their amounts. Yours were bought on yours.
Take an illustration with assumed figures. Two people each put ₹10,000 a month into the same scheme, one starting a year before the other. They end up holding different numbers of units at different average costs, their statements show different figures, and both figures are correct.
Add the other differences, one holding a direct plan and the other a regular plan, one switching schemes midway, one taking money out for a wedding, and the same scheme name produces genuinely different outcomes.
A scheme does not have a return. An investor has a return.
Why do two people compare returns and both think they are right?
Usually because they are comparing different periods, different methods, or different kinds of scheme without saying so out loud.
A fair comparison needs the same start date, the same end date, the same method, and schemes doing roughly the same job. An equity scheme and a short-duration debt scheme are not in a contest. Comparing a scheme against its own stated benchmark, across the same dates, tells you more than comparing it against whatever a colleague happens to hold.
And the comparison most people actually want is not between two schemes at all. It is “will this get me where I need to be”, which depends far more on how much you put in and for how long than on which scheme you chose.
Daily habits
Is it bad to check the value every day?
It is mostly a question of what you will see.
Across a single day
An equity scheme’s value is almost entirely noise.
Across long stretches
The direction of the businesses behind it begins to show.
Check daily and you see the noise, which includes a loss on a great many of those days.
Each of those small red days puts a question to you, and the question is always “do something?” Answering “no” over and over is tiring. Most people eventually answer “yes” on a bad day, which is the worst day to be deciding anything.
Checking monthly, or quarterly, does not change what happens in the market. It changes how many times you are asked to react to it.
What does rupee cost averaging do, and what does it not do?
A fixed instalment buys more units when the NAV is low and fewer when it is high. Across many instalments that arithmetic pulls your average cost per unit below the plain average of the NAVs you paid. That is the whole mechanism and it is real.
Here is the arithmetic with assumed figures, chosen only to show how it works and not drawn from anyone’s experience. Suppose ₹10,000 buys units at a NAV of ₹100, then at ₹50, then at ₹100 again. You hold 100, then 200, then 100 units: 400 units for ₹30,000, an average cost of ₹75 a unit. The plain average of those three NAVs is ₹83.33.
What it does not do is protect you from a fall. If the value of the scheme is down, your holding is down, average cost or not. It does not improve a scheme, it does not rule out a long-term loss, and it is not a reward for bravery in a fall. It only means that while you keep buying, a lower NAV hands you more units for the same money.
What should I do with the urge to act?
Give it something to do that is not a transaction. There is usually a question underneath the urge, and it is answerable.
If something in your situation has changed, that is a real reason to change something, and it has little to do with this week’s news. If nothing has changed, the urge is about the screen. The decision is still yours either way.
Where can I check things for myself?
A reasonable next step on a frightening day is not a transaction in either direction. It is to write down, in one line, the date you will need this money, and then read that line again the next time the screen is red.