Do SIPs Generate Higher Returns Only During Market Correction?

Every time after I make a SIP investment, the market tends to go down in the next couple of days. I always wondered if I would have made higher returns with my SIPs if I waited for a market correction.

Momentum traders always get into a trade when there is an uptrend and exit their trades when the downtrend starts, even if they think their SIP returns would have been higher if they invested only during a market uptrend and avoid SIPs during a market downtrend to avoid major drawdowns.

Every one of us would have thought about it, we always assume we might end up with higher SIP returns if we apply any specific strategy towards it.

What Does Data Say about SIPs & Market Corrections?

Let’s look at the historical chart of Nifty 50 for the last 16 years. Nifty has moved from 3000 odd levels in 2006 to 18000 levels by 2022. I have applied a 10-month moving average to the chart instead of using a 200-day moving average.

I always prefer using 10 MA on a monthly chart, because it greatly reduces the noise. When you use daily charts, there are a lot of movements and tons of gaps that affect the overall trend when you apply a moving average chart to a daily chart.

But once we move to monthly most of the noise is eliminated and shows a smooth graph which helps us to identify those bear markets.

Whenever Nifty goes below the 10-month moving average, we can consider the market has become weak and if goes above this 10 MA, then we can consider the market has become strong.

Let us consider a different scenario for making our SIP investment on the Index.

Nifty 50 1M IDX
  1. Invest X amount only when the market trades above 10 MA, if it closes below 10MA on a monthly basis, then exit all our holdings.

    Wait for the index to close above 10 MA, once it does then invest all our investments again along with that will continue our monthly X SIP investment.
  2. Invest X amount when the market trades below 10 MA. If it closes below 10MA on a monthly basis, then ONLY we will start our SIP.

    If markets continue to trade above 10MA, then we will continue to accumulate cash and wait for the market to crash. If the movement goes below 10 MA, then we will invest lumpsum of all savings we accumulated so far and also continue to invest X amount every month as long as it trades below 10 MA.

    The moment it goes above 10 MA, we will stop our investments and continue to accumulate cash.

Basically, one scenario is to follow the momentum/trend following approach, where we invest only when the market keeps going up and avoid investing during bear markets.

Another approach is the most interesting one as many of us want to invest only during a crash, where we keep investing during a downtrend alone and stay out of the market and keep accumulating cash to invest for the next crash.

Let’s see how much each of these approaches would have returned if we followed it from 2006 to till date.

Invest Only During a Crash

Let’s consider the third scenario first, what would be our returns if invested only when the market closes below 10 MA. In the last 16 years, there are 6 to 7 instances where the market corrected significantly.

In 2008, due to the global financial crisis, the market corrected more than 60%, and again in 2016 due to Brexit /demonetization and other geo-political events, the Index corrected by more than 20%.

Similarly in 2020, due to the Corona pandemic market corrected by around 30%. Our investing during the crash approach would have made use of all these correction periods and invested in the index.

From Jan 2006 to Feb 2008, we would have not invested a single penny in markets, since Nifty continued to trade above 10 MA, so during these periods we would have kept on accumulating cash.

So, consider if we are planning a SIP investment of 1 lac every month. Then for 26 months we would have just accumulated cash and deployed all that cash of 26 lacs in March 2008 when the market closed below 10 MA.

Then until it moved above 10 MA, we would have continued our 1 lac SIP investment to index every month and continued till April 2009, during the prolonged down move where the index corrected 60%, we would have accumulated 894 units of Nifty index.

SIP investing in downtrend

Like wise we replicate this from 2006 to 2022, with this approach we would have invested 1.98 crores so far and the fund value would be 4.57 Crores.

Invest During Momentum

In this second approach, we are investing the same SIP 1 lac every month only when the market trades above the 10-month moving average. We are investing only during up move and book all profits when the downtrend starts, and then re-invest again when the up move resumes.

SIP downtrend investing

From Jan 2006 to Feb 2008, we would have kept on investing every single month and then booked all profits by March 2008 when the market started its downtrend by closing below 10 MA.

SIP investing downtrend table

With this approach, we would have invested 26 lacs between Jan 2006 to Feb 2009 and also made around 5 lacs profit as the market also moved from 3000 to 6000 during this period.

We will sell all our holdings in March 2008 when they closed below the 10-month moving average. Then from March 2008 to April 2009, the market was in a heavy downtrend and it remained below the 10-month moving average.

So, we would have not invested any single penny during this period but we would have accumulated cash every month by April 2009 it closed above 10 MA. So, we will deploy all our accumulated cash + previous exited holdings value in April 2009 when the index resumed its uptrend.

SIP uptrend investing

Like wise we will repeat this approach from 2006 to 2022, with this approach of making SIP investment only during uptrend we would have invested 1.98 crores so far and the fund value would be 4.13 Crores.

Let’s see what’s the maximum drawdown in both cases.

Downtrend SIP Investing

The maximum drawdown is around -23% when you make your SIP investment during the downtrend.

Downtrend SIP result

Uptrend SIP Investing

The maximum drawdown is around -14% when you make your SIP investment during the uptrend. The drawdown is relatively lower in this scenario because we completely book profits and stay away from bear markets or prolonged downtrend periods, hence our investment value doesn’t go down.

Uptrend SIP result

Let us bring in a third approach

Invest Every Month

In this approach, we follow the boring method of regularly investing every month. No analysis. No worry about downtrend or uptrend. Just keep investing.

To our surprise, this approach of regular SIP investment every month has given the highest returns compared to any other approach of investing during uptrend vs downtrend.

With this approach, we would have invested 1.98 crores so far and the fund value would be 4.88 Crores.

Even the drawdowns with normal SIP are around -23% only

Normal SIP result


The market always tends to go up in the long run as the economy of most countries might face short-term pressures but over the larger period, due to a rise in the working population, the economy does well which in turn is reflected in the stock market.

We can never be sure about any single company, so betting our savings through SIPs on stock specific might be riskier.

Instead, investing in index funds is comparatively less risker. Since the exchange keeps adding good performers to the index and keeps removing bad ones from the index, this ensures a smooth upward journey in the index move.

By testing our SIP investing approach in both scenarios uptrend and downtrend, we can conclude that the regular boring approach beats every other type of investing strategy.

Just keep investing!

This blog was a guest post on Dhan’s Community by Mr. Kirubakaran Rajendran (Algo Trader & Founder of Join the discussion by tapping this link.

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Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.

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