Investors benefit from top-ups during market downturns

The stock market has faced significant corrections as of February 2025. The Nifty index has dropped by 15%, while Midcap 100 and Small cap 250 indices have seen declines of 21% and 25%, respectively. Many stocks have experienced even larger declines, with 81% of NSE 500 stocks correcting by more than 20% and 58% down over 30%. Such conditions can create uncertainty for investors. During market downturns, it can be tempting to panic and sell investments. However, seasoned investors often recommend a strategy called "topping up." This involves adding more money to investments when prices are lower. Staying invested can provide opportunities for future growth, as seen in the case of two hypothetical investors. Investor A faced a nearly 17% decline in his portfolio during the 2022 market downturn but chose to stay invested. Over two years, his investment had a return rate (XIRR) of 7.22%, despite market challenges. By contrast, Investor B made incremental top-ups during the market decline. This strategy limited his loss to just over 8% and led to a higher return of 8.95%, outperforming Investor A. The current market remains volatile, similar to conditions seen during the COVID-19 pandemic in 2020. However, this uncertainty can present opportunities for long-term investors. Experts suggest that now is a good time to accumulate investments gradually, as stock prices are below their historical averages. Recent developments, including measures by the Reserve Bank of India to improve liquidity and a focus on boosting consumption in the Union Budget, could also support market recovery. Thus, a cautious, long-term approach to investing is recommended.