Can You Make Money When the Stock Market Goes Down?

Yes, you can make money when the stock market goes down, but the methods that profit directly from a fall (short selling, puts, futures) are risky and most retail traders who use them lose money. For most investors, the realistic goal in a falling market is to buy good assets cheaper and limit damage, so that the eventual recovery pays off.

This article walks through the approaches from the most conservative to the riskiest: continuing and stepping up SIPs, staggering lump sums, rebalancing, defensive stocks, debt and gold, short selling and hedging with options and futures. It includes a worked rupee-cost averaging example, a rebalancing calculation, a put-hedge example and a risk table comparing all of them.

First, check your foundations

A falling market only becomes an opportunity if you are not forced to sell. Before doing anything else, make sure you have an emergency fund of about six months of expenses in a savings account, FD or liquid fund, and that money needed within three to five years is not in equity.

It also helps to know what kind of fall you are in. A 10% dip, a 20% bear market and a full crash behave differently, and our guide on what counts as a stock market crash explains the usual thresholds. No one can reliably tell in advance how deep or long a fall will be, which is why the steady approaches below tend to work better than trying to time the bottom.

1. Keep your SIP going, and step it up if you can

A systematic investment plan (SIP) buys mutual fund units for a fixed rupee amount each month. When the NAV (net asset value, the price of one unit) falls, the same amount buys more units. This is called rupee-cost averaging, and it is the simplest way ordinary investors benefit from a fall.

The mistake many people make is stopping the SIP when the market drops, which means they stop buying exactly when units are cheapest. A step-up (or top-up) SIP, where you raise the monthly amount by a fixed percentage each year, adds more money over time and works especially well if you raise it during a weak market.

Worked example: rupee-cost averaging through a fall

Suppose Priya invests ₹10,000 a month in a Nifty 50 index fund for six months. The NAVs below are hypothetical: the market falls 30% and then recovers only part of the way.

Month	NAV (₹)	Amount invested (₹)	Units bought (amount ÷ NAV)
1	100	10,000	100.00
2	90	10,000	111.11
3	80	10,000	125.00
4	70	10,000	142.86
5	80	10,000	125.00
6	90	10,000	111.11
Total		60,000	715.08

• Average cost per unit: ₹60,000 ÷ 715.08 = ₹83.91, well below the simple average NAV of ₹85 and the starting NAV of ₹100.
• Value at the end of month 6: 715.08 × ₹90 = ₹64,357, a gain of ₹4,357 (about 7.3%).
• If Priya had invested the whole ₹60,000 at NAV ₹100, she would hold 600 units worth 600 × ₹90 = ₹54,000, a loss of ₹6,000 (10%).

The index is still 10% below where it started, yet Priya’s SIP is in profit. Two caveats: if the market had gone straight up, the lump sum would have done better, and if the market keeps falling, the SIP will also show losses until prices recover. You can test your own numbers with our SIP calculator.

2. Stagger lump sums with an STP

If you have a bonus, maturity proceeds or savings to invest during a fall, putting it all in on one day is a bet that you have found the bottom. A systematic transfer plan (STP) is the usual alternative: you park the money in a liquid or short-duration debt fund and transfer a fixed amount into an equity fund of the same fund house every week or month.

For example, ₹6 lakh could move into an equity fund at ₹50,000 a month over 12 months, or ₹1 lakh a month over six months if you want faster deployment. The money waiting in the debt fund keeps earning a modest return. Note that each transfer is a redemption from the debt fund, so any gain on it is taxed at your slab rate (for units bought on or after 1 April 2023).

3. Rebalance back to your target allocation

Rebalancing means moving money between asset classes to return to a target mix. In a fall, it forces you to sell what held up (debt, gold) and buy what got cheaper (equity), which is the opposite of what fear tells you to do. Our article on asset allocation for investors covers how to pick a target.

Suppose Arjun has ₹10 lakh split 60:40, so ₹6 lakh in equity funds and ₹4 lakh in debt funds. Equity falls 25% to ₹4.5 lakh and debt rises 3% to ₹4.12 lakh. His portfolio is now ₹8.62 lakh, and equity is only 52.2% of it (4.5 ÷ 8.62).

To restore 60%, equity should be ₹8.62 lakh × 0.60 = ₹5.172 lakh. Arjun moves ₹5.172 lakh − ₹4.5 lakh = ₹67,200 from debt to equity. Rather than switching (which triggers tax), he could direct new SIP money to equity until the mix is back on target. Many investors rebalance once a year, or whenever an asset drifts more than five percentage points from its target.

4. Defensive and dividend-paying stocks

Some sectors sell things people buy in any economy: everyday consumer goods (FMCG), medicines, power and other utilities. Their earnings tend to be steadier, so their shares have often fallen less than the broad market in downturns, though this is a tendency, not a rule. In some falls, expensive defensive stocks drop sharply too.

Dividends also help, because they pay you cash while prices are down. Check that the dividend is covered by earnings and cash flow, not funded by borrowing, and remember dividends are taxed at your slab rate. Our list of dividend stocks worth researching explains how to screen them. A weak business is not a bargain just because its price has fallen, so check valuation as well.

5. Debt and gold as shock absorbers

High-quality debt (FDs, government securities, short-duration and gilt funds) usually holds value when equities fall, and if interest rates are cut during a slowdown, longer-duration bond funds can post gains. Our article on whether bonds are a good investment in a crash covers the details. Debt fund gains on units bought on or after 1 April 2023 are taxed at your slab rate.

Gold has often risen during periods of market stress and currency weakness, but it can also fall for years at a time. The easiest ways to hold it are gold ETFs and gold mutual funds. Gold ETF gains are taxed at 12.5% if held more than 12 months; gold mutual funds (fund-of-funds) need more than 24 months for the 12.5% rate, and shorter-term gains on both are taxed at your slab rate. Keeping 5% to 15% of a portfolio in gold is a common range, but it is a diversifier, not a way to get rich from a fall.

6. Short selling: profit from a fall, with real risk

Short selling means selling shares you do not own, hoping to buy them back cheaper. If you short a stock at ₹1,000 and buy it back at ₹900, you make ₹100 a share before costs. If it rises to ₹1,200 instead, you lose ₹200 a share, and in theory there is no limit to how high a price can go.

SEBI’s short-selling framework, reissued in its circular of 5 January 2024, allows both retail and institutional investors to short sell, but bans naked short selling: every seller must deliver the shares at settlement. In practice this means:

• Retail investors in the cash segment can short only intraday unless they borrow the shares. A short position must be bought back before the market closes the same day; if it is not, and you cannot deliver, the exchange auctions the shares and you can face a heavy penalty.
• To hold a short overnight in the cash market, you must borrow shares through the Securities Lending and Borrowing (SLB) mechanism, paying a lending fee and posting collateral. SLB liquidity is thin outside large-caps.
• Retail investors must disclose a short sale to their broker by the end of the trading day; institutions must disclose it upfront and are not allowed to square off intraday. Stocks in the F&O segment are eligible for short selling.

Intraday shorting carries all the problems of intraday trading. A SEBI study released in July 2024 found that more than 70% of individual intraday traders in the equity cash segment lost money in FY23, and the share rose to 80% among those making more than 500 trades a year. Our guide on whether you can make money in intraday trading covers this in detail.

7. Hedging with put options and futures

Derivatives let you profit from a fall, or protect a portfolio, without borrowing shares. A put option gives you the right to sell an index or stock at a fixed price (the strike) until expiry; you pay a premium for that right. Selling a futures contract locks in a price, so you gain if the index falls and lose if it rises.

Worked example: protecting a portfolio with a Nifty put

Suppose Meera has an equity portfolio of ₹16.25 lakh that moves closely with the Nifty 50, and the Nifty is at 25,000. All prices here are hypothetical. One Nifty contract is 65 units (the lot size since the January 2026 series), so one lot covers 65 × 25,000 = ₹16.25 lakh, roughly her portfolio.

1. She buys one one-month Nifty put with a 24,000 strike at a premium of ₹150. Cost: 150 × 65 = ₹9,750 (about 0.6% of the portfolio), plus charges.
2. The Nifty falls 12% to 22,000 by expiry. Her portfolio loses about 12% × ₹16.25 lakh = ₹1,95,000.
3. The put pays (24,000 − 22,000) × 65 = ₹1,30,000.
4. Net loss: ₹1,95,000 − ₹1,30,000 + ₹9,750 = ₹74,750, or about 4.6% instead of 12%.

If the Nifty instead rises or stays above 24,000, the put expires worthless and Meera loses the ₹9,750 premium. Buying this protection every month adds up to a large annual cost, so hedges are usually bought for specific periods of risk, not permanently. Selling one Nifty future instead would offset almost the whole fall, but it also wipes out gains if the market rises, and it needs a margin deposit of a few lakh rupees with daily mark-to-market settlement.

Buying puts purely to bet on a fall is much riskier than hedging. SEBI’s studies have found that around nine in ten individual F&O traders lose money, and Budget 2026 raised the securities transaction tax (STT) on futures from 0.02% to 0.05% and on options premiums from 0.1% to 0.15% from 1 April 2026. Our guide to making money with options trading explains the numbers.

Risk table: comparing the approaches

Approach	How it helps in a fall	Main risk	Maximum loss	Suits
Continue or step up SIP	Buys more units at lower prices	Fall lasts longer than expected	Temporary loss on amount invested	Almost all long-term investors
STP / staggered lump sum	Spreads entry over months	Market recovers before money is fully invested	Same as equity, on the invested part	Investors with a large sum to deploy
Rebalancing	Sells safer assets, buys cheaper equity	Equity keeps falling after you buy	Limited to the equity share you hold	Anyone with a set allocation
Defensive and dividend stocks	Usually smaller falls, steady income	Can fall sharply if overvalued; stock-specific risk	Up to the full amount in a single stock	Investors who research companies
Debt and gold	Hold value or rise as equity falls	Rate rises hurt bonds; gold can fall for years	Low for quality debt; moderate for gold	Every diversified portfolio
Short selling (intraday)	Profits directly from a falling price	Sharp rallies, auction penalties if not squared off	Unlimited in theory	Experienced traders only
Buying puts	Gains when index falls below strike	Time decay; most expire worthless	The premium paid	Hedgers with a clear purpose
Selling futures	Gains point-for-point as index falls	Leverage; losses if market rises	Large, can exceed margin	Experienced traders and hedgers

A practical checklist for the next fall

1. Confirm your emergency fund and near-term money are outside equity.
2. Do not pause SIPs. If income allows, raise them.
3. Deploy any lump sum through an STP over 6 to 12 months.
4. Check your allocation; if equity has drifted more than five points below target, rebalance using new money first.
5. Research stocks on business quality and valuation, not just on how far the price has fallen.
6. Use shorts, puts or futures only if you understand the maximum loss and can size the position so that loss is affordable.
7. Book losses where useful: short-term capital losses can be set off against capital gains, which can lower your tax bill.

Common mistakes in a falling market

• Selling in panic and waiting for “clarity”. By the time the news improves, prices have often recovered a large part of the fall.
• Catching falling knives. A stock down 60% can fall another 60%. Debt-laden companies and penny stocks are the most common traps.
• Switching to F&O to “make back” losses. Leverage magnifies mistakes made under stress.
• Going all-in at once. Investing everything after a 15% drop leaves nothing for a 30% drop.
• Following paid tips. Anyone selling “crash-proof” calls without SEBI registration as an investment adviser or research analyst is operating outside the rules.

FAQ

Can retail investors short sell shares in India?

Yes. SEBI allows all investors to short sell, but naked short selling is banned. Retail investors in the cash segment must square off a short position the same day unless they borrow shares through SLB. Shorting via futures or puts is the other route.

Should I stop my SIP when the market is falling?

Generally no. A fall is when your SIP buys the most units, which lowers your average cost. Stop only if your financial situation has changed, for example a job loss, not because of market movement.

Is it better to invest a lump sum after a crash?

Investing after a big fall has often worked well over long periods, but no one knows where the bottom is. Splitting the amount over several months through an STP reduces the regret of investing everything just before a further drop.

Do put options guarantee profit in a crash?

No. A put gains only if the price falls below the strike by more than the premium before expiry. If the fall comes after expiry, or is too small, you lose the premium. Timing is the hard part.

Which assets usually do well when stocks fall?

High-quality bonds and gold have often held up or risen during equity falls, though not every time. Cash also keeps its value and gives you money to invest at lower prices.