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SIPs: Stick With It Through Market Dips
9 Oct
Summary
- Focus on asset allocation, not past performance for mutual funds.
- Small-cap valuations are high, warranting caution for investors.
- Continue SIPs during market corrections to buy more units.
Mutual fund investors are currently experiencing significant market volatility, with equity funds continuing to attract substantial inflows. Despite a recent dip in the Nifty, inflows have persisted for 66 consecutive months. Experts emphasize that consistent inflows do not guarantee market safety and advise investors to base their equity allocation on financial goals and risk tolerance. Investments intended for use within five to seven years should generally avoid equities.
Concerns are being raised regarding high valuations in the small-cap segment. In August, small- and mid-cap funds attracted over half of all equity mutual fund inflows, while large-cap funds saw outflows in July and August. The Nifty Smallcap 250 index is trading significantly above its historical median. It is recommended to maintain large- and mid-cap funds as the core of equity portfolios, with small-cap funds serving as a smaller, supplementary allocation.
Investors are strongly encouraged to maintain their Systematic Investment Plans (SIPs) even during market corrections. Stopping contributions can be detrimental, whereas continuing SIPs allows for the purchase of more fund units at lower costs. Monthly SIP contributions reached a record ₹32,297 crore in August. For those with a lump sum, a systematic transfer plan (STP) over six to 12 months can help stagger investments. Hybrid funds remain a viable option for balanced exposure.
