Situations like West Asia conflict-driven market dips may become an advantage for the Systematic Investment Plan (SIP) investors – lower NAVs (Net Asset Values) meant more units, and sharper gains when markets rebounded. Similarly, retail investors may look for a multi-asset class portfolio to navigate a conflict period unscathed.
In reality, they are tests of investor behaviour. The recent phase of volatility – driven by geopolitics, inflation risks, and global uncertainty – has once again exposed a familiar pattern: investors retreat just when markets begin to offer better value.
At the heart of this paradox lies the SIP, a simple tool that thrives not in bull markets but in periods of discomfort. Market corrections are often mistaken for signals of danger.
The recent correction in equity markets has triggered anxiety among retail investors, leading to a rise in cancellations of SIPs, even as experts caution that such reactions can harm long-term wealth creation.
Despite market volatility, SIP inflows remain robust at over Rs 30,000 crore per month. In some recent months, SIP cancellations have outpaced new registrations. Most of the investors stopping their SIPs are relatively new participants who have never experienced a significant market downturn
After a multi-year rally, Indian equities have entered a phase of consolidation, with indices correcting and broader markets witnessing sharper drawdowns. In essence, earnings cycles are normalising, valuations are adjusting, and excess optimism is being priced out.
This is precisely the environment where SIPs demonstrate their real strength. When markets decline, each instalment buys more units. Over time, this reduces the average cost of ownership, positioning the investor advantageously for the eventual recovery. This is not a theory; it is repeatedly validated across decades of market history.
Data across more than 40 years of geopolitical events showed that market drawdowns during crises are temporary, while recoveries are both swift and disproportionate. The average one-year return following major conflicts has been around 37%, with some episodes delivering gains as high as 82% after sharp declines.
Take the case of the 1990–91 Gulf War. During the conflict, the BSE Sensex fell sharply by around 35% and in just one year after the war, the market surged by 82%. This is one of the most extreme examples of how panic-driven selling can lead to missing out on outsized gains.
Post Kargil War (1999), Sensex returns were around 18% after one year. After Iraq War (2003), returns were around 73% after one year. Similarly, after the Mumbai attacks (2008), returns were over 80% after one year.
So, the period of maximum pessimism often coincides with the period of maximum opportunity. Yet, this is exactly when investors tend to exit.
During corrections, many investors suspend SIPs, waiting for certainty. But markets do not reward certainty; they reward participation. By the time the outlook appears comfortable, prices have already adjusted upward, and the window of opportunity has narrowed.
In periods of geopolitical stress, many retail investors in India find it difficult to stay anchored to pure equity exposure. Sharp headlines, currency swings and global uncertainty often trigger emotional responses, leading to premature exits or hesitation in deploying fresh capital. This behavioural drift can hurt long-term returns more than the volatility itself.
A practical way to navigate such phases is through a multi-asset portfolio that blends equities with debt and gold. Equities remain the primary driver of long-term growth, but tend to be volatile during conflict-led shocks. Debt instruments, including high-quality bonds and short-duration funds, provide stability and predictable income, helping cushion short-term drawdowns and liquidity needs.
Gold, which has historically acted as a hedge in times of crisis, often benefits from global risk aversion and currency weakness. In the Indian context, it also serves as a familiar store of value for households, making it easier for investors to stay psychologically comfortable during uncertain times. Limited exposure to overseas markets can further diversify risk arising from domestic disruptions, policy cycles and currency movements.
The objective is not to eliminate volatility, but to make it more manageable so that investors are less likely to react impulsively. By spreading risk across asset classes, investors improve their ability to stay invested, maintain discipline, and stay aligned with their long-term financial plans.
Periods of drawdown serve two critical functions. First, they reset valuations, making future returns more attractive. Second, they transfer ownership from impatient participants to disciplined ones.
It removes the need to time entry and exit points—two decisions that even seasoned investors struggle to get right consistently. Instead, it embeds discipline into the investment process, ensuring participation across market cycles.
In fact, many analysts explicitly recommend continuing or even stepping up SIPs during such phases, recognising that the real compounding begins when discomfort is highest.
Ultimately, SIP investing is less about financial engineering and more about behavioural design.
Investors could also consider redeploying idle capital from savings or FDs into equities over 3–6 months, as this has historically been one of the best risk-adjusted strategies available.
Besides SIP, investors should make liquidity planning as well. Funds needed over the next 1-3 years should remain in liquid or short-duration debt instruments to avoid disruption of long-term investments.