Every equity mutual fund carries the label “Very High” on its riskometer. Many first-time investors read that as “you might lose everything”. That is not what it means — but it does mean you should expect falls that feel uncomfortable, sometimes very uncomfortable. Understanding the difference between a fall and a loss is what lets you stay invested long enough to benefit.
Volatility versus permanent loss
Volatility is how much prices move up and down. Permanent loss is money that does not come back. A diversified equity fund holds dozens of companies across many industries; for its value to go to zero, all of them would have to fail at once. What does happen, regularly, is that the whole market falls sharply for months and then recovers over time.
Permanent losses usually come from somewhere else: a single stock that collapses, a scheme that promised guaranteed high returns, borrowing to invest, or selling in a panic and never buying back.
How big have falls been?
Indian markets have been through several deep falls. These are approximate figures for the Nifty 50 index, from its peak to its lowest close:
| Episode | Approximate fall | Back to a new high |
|---|---|---|
| Global financial crisis, 2008 | about 60% | late 2010, almost three years after the peak |
| 2015–16 slowdown | about 23% | early 2017, about two years after the peak |
| Covid crash, early 2020 | nearly 40% in about two months | November 2020, within a year of the peak |
| Late 2024 to early 2025 | about 16% | late 2025, about 14 months after the peak |
Smaller falls of 10–20% have happened in most years. Mid-cap and small-cap funds usually fall further than this in bad times. In each episode above the index eventually went on to new highs, though the wait was sometimes years. You can replay these falls with real data in our Crash Replay.
Past recoveries do not guarantee future ones, but they show why equity is a long-term asset: the falls are the price you pay for the long-term growth.
Why a SIP likes a fall
A fall hurts the money you already have, but it helps the money you are still putting in. Imagine a fund whose NAV slides from ₹100 to ₹70 over a year and climbs back to ₹100 over the next. A ₹10,000 monthly SIP through those 24 months invests ₹2.4 lakh and buys about 2,850 units at an average cost of about ₹84. When the NAV is back at ₹100, the investment is worth about ₹2.85 lakh — a gain of nearly 19%, although the NAV only returned to where it started. This is a made-up path to show the mechanism, not a forecast.
The investor who stopped the SIP in the middle of the fall missed exactly the cheapest units.
What the riskometer measures
SEBI requires every scheme to show a riskometer with six levels: Low, Low to Moderate, Moderate, Moderately High, High and Very High. It reflects what the fund holds — the type of securities, their credit quality, how easily they can be sold — and is reviewed every month. It does not describe how the fund has performed. A liquid fund sits near Low, most equity funds sit at Very High, and hybrid funds sit in between.
Your real risk is behaviour
For most families the biggest risk is not the market. It is selling after a fall, turning a temporary decline into a permanent loss, and then waiting on the sidelines until prices are higher again. An investor who does this repeatedly can earn far less than the funds they owned, because they own the funds mostly during the good times.
How to size equity so you can stay invested
- Match to time: money needed in under 3 years should not be in equity. Money for 7 or more years can be mostly equity.
- Do the 30% test: multiply your equity holdings by 0.3. If seeing that amount disappear on paper for a year would make you sell, hold less equity. With ₹10 lakh in equity, the test amount is ₹3 lakh.
- Keep a cushion: an emergency fund and adequate insurance mean a fall never forces a sale.
- Automate buying: a SIP keeps buying through a fall without asking your permission.
- Look less often: checking a long-term portfolio daily makes normal ups and downs feel like emergencies.
A simple way to think about it
If you bought a flat and prices in your area fell 20% for a year, you would not sell it, partly because you would not see the price every day. Equity funds show you their price every day. The discipline is to treat them like the flat: a long-term asset you judge over years, not days.
Frequently asked questions
Should I stop my SIP when the market is falling?
For long-term goals, no. A fall is when a SIP buys the most units. Stop or reduce only if your own situation has changed — for example, if you have lost income and need the money.
Can a debt fund fall too?
Yes, though usually much less. Debt funds can lose value when interest rates rise sharply or when a bond they hold defaults. That is why their riskometer levels vary.
Not sure how much equity suits you? Try our calculators and the risk quiz, then talk to us about a mix you can stick with.
Figures above are illustrations based on assumed rates of return and are not a promise or guarantee of future returns. Mutual fund investments are subject to market risks, read all scheme related documents carefully. WishWiseWealth is an AMFI-registered Mutual Fund Distributor (ARN-188221).