Edelweiss MF CEO Radhika Gupta weighed in on the ongoing debate about mid-cap and small-cap SIPs, urging investors to avoid fear-mongering and focus on disciplined, long-term strategies.
Gupta in a post emphasized the importance of maintaining a sensible, diversified approach and holding investments for at least 10 years or more.
ICICI Prudential AMC’s veteran fund manager S Naren, speaking at the IFA Galaxy 2025 event, sparked debate when he advised caution around mid-cap and small-cap investments.
Highlighting the elevated risks in 2025, he described the year as potentially “the most dangerous since the 2008-2010 period.” He noted that while historically, risks were borne by banks and larger institutions, today retail investors shoulder the majority of risks.
Naren pointed out how companies now raise funds directly through equity investors via QIPs and IPOs instead of relying on traditional bank loans, creating a scenario where individual investors bear the brunt of any overvaluation.
Naren also challenged the belief that SIPs are foolproof, stressing that their success depends on market conditions. “SIPs work best in volatile and undervalued asset classes. This is a crucial factor that the mutual fund industry is not considering,” he warned.
He highlighted the high median P/E ratio of 43x in mid- and small-caps and their disproportionate market capitalization growth relative to profit, labeling the current valuations as “unsustainable.” He cautioned that fresh inflows into these segments continue to drive excessive leverage and speculative momentum, further compounding risks. According to him, even long-term SIPs initiated at these valuation levels could struggle to deliver strong medium-term returns unless held for an extended period, such as 20 years or more.
In contrast, Gupta took a more optimistic stance, pointing to Edelweiss’ mid-cap fund performance since its launch in 2007. “Here are the rolling 10-year lump sum returns: the minimum return is 10%, and the minimum SIP return is 8%. Nothing can convince me these are bad numbers. And, by the way, no negative returns in 10 years,” she asserted.
While acknowledging the need for balance, Gupta emphasized that investing in mid- and small-caps is not inherently problematic if done through a reliable fund manager and a long-term strategy.
Gupta urged investors to avoid being swayed by fear and short-term market noise.