Market corrections are uncomfortable but making them costly is in our hands.
Over the last few months, many investors have felt uneasy looking at their equity portfolios. For those who started investing in recent years, especially through SIPs, returns over the last one to three years have been modest and, in some cases, disappointing.
Recent NIFTY Returns Are Low—But not unusual
Many investors have noticed that 1-year and 3-year SIP XIRRs are currently lower than expected. Those who started their SIPs during recent rallies may find current returns disappointing; however, this is typical and not unusual for the market. Starting valuations are the main reason behind such occurrences normally.
The Role of Valuations in Equity Returns
Equity markets are forward-looking. Prices reflect not just current earnings, but expectations about future growth. When optimism is high, valuations expand. When uncertainty rises, valuations contract.
The recent correction has led to a meaningful shift in market perception. As a result, NIFTY valuations today are far more reasonable than they were earlier.
From a long-term perspective, this matters.
Lower valuations often imply:
- more realistic expectations,
- better alignment between price and fundamentals,
- and potentially healthier long-term return prospects.
Paradoxically, what feels uncomfortable in the short term often improves the long-term investment environment.
Why SIPs Feel Most Difficult When They Matter Most
Systematic investing is designed to work across market cycles. Its true value emerges not during rallies, but during periods of correction.
When markets are high, continuing SIPs feels effortless. When markets fall and recent returns look disappointing, continuing SIPs feels emotionally difficult.
Yet, this is precisely when SIPs serve their purpose:
- more units are accumulated at lower prices,
- average acquisition cost improves over time,
- and long-term compounding gets a stronger foundation.
Stopping SIPs during corrections can unintentionally undermine this process.
Paper Losses, Realised Losses, and Investor Psychology
A decline in portfolio value is often a paper loss. Converting it into a realised loss by exiting investments is a decision driven more by emotion than by long-term logic.
Once an investor exits:
- returning to the market becomes psychologically harder,
- waiting for the “right time” becomes uncertain,
- and long-term compounding may be disrupted.
History shows that equity markets often remain subdued for extended periods and then recover sharply within a short span. Investors who step out during difficult phases often struggle to re-enter during recovery phases.
Equity Returns Are Lumpy—And That Is Their Nature
One of the most misunderstood aspects of equities is the uneven nature of returns.
Over long periods:
- several years may deliver modest or average returns,
- a few years may deliver exceptionally high returns,
- and those few years often account for a large part of total long-term gains.
This is what differentiates equities from fixed income. Predictability is lower, but long-term potential is higher.
Judging equities based on one- or three-year SIP returns can therefore be misleading.
A Calm Perspective in Uncertain Times
The recent phase of modest SIP returns is not a sign that equities have stopped working. It is a reminder that equity investing is cyclical, not linear.
Today, valuations are more reasonable. Expectations are more grounded. And the emotional environment is less euphoric than before.
From a long-term standpoint, such phases have often laid the foundation for future returns.
For investors, the challenge is not predicting the next market move, but maintaining discipline when recent performance feels disappointing.
Sometimes, the most important investment decision is not about buying or selling—but about continuing.
Key Takeaways
- Short-term SIP returns can be disappointing, especially for those who entered the market during that time.
- Equity markets move in cycles; corrections are a natural part of the journey.
- Valuations today are more reasonable compared to recent peaks.
- Systematic investing is designed to work through such phases, not avoid them.
- Equity returns are uneven, but historically rewarding over long periods. Key for investors is to remain systematic and process-driven and not by emotions.
Disclaimer
This article is intended to share perspectives on market behaviour and long-term investing. It should not be construed as investment advice. Mutual fund investments are subject to market risks.