A recent analysis of smallcap SIP investments revealed that since the Nifty peak in September, investors have experienced losses in all 29 schemes, resulting in a negative XIRR of up to 46%. Approximately four funds exhibited negative XIRR of over 40% for SIP investments made on October 1st of last year. According to a recent report from Motilal Oswal Asset Management Company, as of January 31st, broad-based indices were displaying short-term negative returns, although they remained positive over a one-year period.
Based on data from ACE MF, the majority of small-cap, midcap, and large-cap funds have displayed negative returns for SIPs over a one-year period.
Approximately 58% of active large-cap funds showed negative returns for SIP investments over this time frame, while 55% of mid-cap funds experienced a decline in value.
Similarly, 70% of small-cap funds had negative SIP returns over the one-year period. However, all market-cap funds yielded positive returns for SIP investments over a three-year period.
In the past 6 months, the Nifty Smallcap 250 Index has declined significantly by 11.68% over the past six months, though it maintained a positive return of 5.23% over the year. Similarly, the Nifty Midcap 150 Index has experienced a decline of 9.19% over the past six months, though it still shows a positive 10.99% increase over the past year. In the same period, the benchmark Nifty 50 Index has demonstrated relatively better resilience with a smaller decline of 5.78 percent over six months while posting an 8.21 percent gain over the one-year period.
"Today, the volatility in the market is due to domestic and global factors. The Q3 earnings of FY2025 were not that great leading to a rise in volatility in the Mid-cap and Small-cap segments in the Equity market. On the global side, FII outflow in lieu of Japan’s carry trade started the FII outflows in Sep followed by China’s Economic Stimulus Package and US Elections and US treasury yields peaked, all these led to volatility in the market. Expectations of US tariffs are disturbing the inflows once again," said Chirag Muni, Executive Director, Anand Rathi Wealth Limited.
Should you halt your SIPs?
There has been a lot of scrutiny on the effectiveness of SIP investments due to the negative returns experienced. This investment method has gained significant popularity in recent years. In the year 2024, mutual fund investments through SIPs reached Rs 2.89 lakh crore.
According to veteran fund manager S Naren from ICICI Pru AMC, investors should exercise caution when considering SIP investments in mid and small-cap stocks. During a recent address at the IFA Galaxy 2025 event, Naren advised it is prudent to completely withdraw from small- and mid-caps at this juncture.
He emphasized that the year 2025 could pose significant risks, akin to the challenging period observed between 2008 and 2010, where many investors suffered losses, especially in the banking sector.
However, experts feel the coming months can be better than before.
"Going forward, the Q3 growth is expected to be strong. We expect YoY growth for Q3FY25 earnings is currently around 11.6% for Nifty 50. The expected growth in FY25 for the Nifty Small Cap index and the Nifty Mid Cap 150 index is 22%. The Indian market has corrected 12% from its peak. And there is no froth in the market at present, therefore, the outlook for Indian market is attractive at the moment. The government is constantly trying to boost the liquidity in the economy via measures like CRR rate cut, Repo rate cut, a change in income tax slab rates, and an increase in the rebate in income tax. All these are going to help consumption to boost up and impact the economy as a whole," Muni added.
Investing during market dips
Experts feel SIPs should go on as they are specifically designed to handle fluctuations in market volatility and downturns. Radhika Gupta, Managing Director and CEO, Edelweiss Mutual Fund, said: “...(An SIP is) a fill it, shut it, forget it one because most people struggle to markets, market caps and SIPs. Don't fall for fear mongering or 10-day debates. Focus on finding a good manager and holding for 10 years, in a sensible balanced way.”
"During market dips, it is advised to stay put and continue your SIPs, as investing is a long-term journey. In case of a 5 to 10% market correction, one can try to invest in a lump sum in case of having ideal cash. We have seen the market tend to rebound in 6 to 8 months from its peak," Muni added.
"Diversification is the key in investment. Diversify your portfolio across all three market caps. The ideal market cap allocation would be 50-55% in large cap, 20-25% in mid cap, and the rest in small cap. This will help you ride volatility comfortably. If you have an ample amount of small caps in your existing portfolio, there is no need to go ahead and invest in new ones. You can realign your portfolio according to the ideal allocation of market caps," he further said.
The opinions and investment recommendations shared by financial experts in our articles are their own views and are not necessarily endorsed by the website or its management.