Your SIP isn't delivering. Should you stay invested?

Summary: When a fund underperforms, the hardest question isn’t what to do, but why it’s happening. This piece explains how different kinds of underperformance call for different responses, and why returns alone rarely provide the full answer.

Market declines are routinely framed as good news for SIP investors. Lower prices mean more units, smoother averages and, eventually, stronger long-term returns. There is ample research to support this logic. Still, the investor’s leap of faith that often follows deserves closer scrutiny.

Those who have lived through more than one market cycle know that falling NAVs can either lead to a rewarding accumulation phase or to an extended exercise in patience with little to show for it. Both experiences look similar at the moment. What separates the two has less to do with the market itself and far more to do with why a fund is underperforming.

Underperformance is not a single condition. It arises for different reasons and therefore demands different responses. Treating all underperforming phases the same way may be simple, but it is rarely analytically sound.

When underperformance points to deeper trouble

At times, periods of underperformance act like stress tests. They expose weaknesses that were easy to ignore during rising markets. These could stem from excessive exposure to riskier segments, an overreliance on derivatives to boost short-term gains, or structural flaws in portfolio construction.

In such cases, the issue lies not with the market but closer to home. The fund manager may struggle to adapt to shifting market leadership, or the portfolio may be too rigid to respond effectively to changing conditions.

When this happens, recovery is not automatic. Markets may continue to grow while such funds lag, or fail to recover meaningfully at all. Continuing a SIP in these circumstances can create the appearance of discipline but often results in little more than an expanding unit count tied to a stagnating strategy.

This is the uncomfortable side of SIP investing. Accumulation only works if the fund retains the ability to participate meaningfully in the next upcycle.

In these situations, lower NAVs are not bargains. They are warnings. And SIPs, admirable as a habit, cannot compensate for a strategy that has lost its relevance.

When underperformance is just the market changing its mind

The other side of underperformance has a more benign and more common explanation.

Markets rotate. Investment styles move in and out of favour with predictable regularity. Growth enjoys long runs before stalling. Value waits patiently before reasserting itself. Funds that remain faithful to a particular style inevitably move in and out of favour along the way.

These phases can feel dramatic for investors. While returns do not collapse outright, they often disappoint enough to sow doubt. This discomfort is precisely what makes such periods hard to sit through.'

Yet this is exactly where SIPs tend to do their best work. When a mutual fund underperforms because its style is temporarily out of favour, falling NAVs allow investors to accumulate more units of a strategy that remains structurally sound. When market preferences rotate again, and history suggests they usually do, those accumulated units can significantly amplify returns.

We saw this play out in the post-Covid rally. After a prolonged, growth-driven phase, the market shifted its attention to value-oriented stocks. Those who stayed invested in value funds endured underperformance of about 2 per cent per annum in the five years leading up to the lockdown. But once the rally began, the tables turned. Over the next five-and-a-half years, the average value fund delivered roughly 3 per cent per annum of outperformance.

The takeaway is straightforward. Style shifts, by themselves, rarely justify an exit. Staying invested through such phases helps ensure that your portfolio remains purposeful over the long term.

The problem with judging by returns alone

It may be tempting to believe that returns alone can point to the right decision. In practice, the real challenge lies in distinguishing structural problems from normal style cycles.

Structural issues rarely announce themselves clearly. They emerge gradually, often masked by temporary rallies. Looking only at recent returns offers little clarity. Performance data captures outcomes, not causes.

This is where many SIP decisions falter. Investors respond to underperformance with a single reflex, regardless of context. Some persist mechanically, assuming every decline is temporary. Others exit at the first sign of discomfort, mistaking a normal cycle for a fundamental flaw.

Both approaches confuse discipline with inertia and decisiveness with insight.

Need help deciding what to hold and what to let go?

SIPs were never designed to suspend judgement. They were meant to remove emotion from execution, not from thinking.

If you are unsure whether your underperforming fund reflects a temporary phase or a deeper issue, help is close at hand. In the Fund Advisor Live session on January 31, 2026, Dhirendra Kumar and his team will break this down in detail, exclusively for Value Research Fund Advisor subscribers.

In 60 minutes, you will learn:

• What to check before taking any action, and what to ignore
• How to separate temporary underperformance from real fund problems
• When switching makes sense and when it amounts to performance chasing
• How to make changes cleanly without cluttering your portfolio

The session will conclude with a live Q&A, allowing you to put your questions directly to the experts.

Please note that this session is available only to active Fund Advisor subscribers. If your subscription is not active, you can restart it now to secure your seat.

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This article was originally published on January 22, 2026.