Smallcap SIP: The decline in Indian small and midcap stocks continued on Tuesday, with the overall market experiencing significant drops as investors reevaluate valuations amidst weak corporate earnings and global uncertainty.
Due to ongoing losses in the equity markets, many small-cap funds have displayed negative returns on their one-year Systematic Investment Plans (SIPs) over the past six months. This trend has caused concern among investors, who have invested around Rs 35,000 crore in active small-cap funds in 2024, nearly double the inflows into large-cap funds.
Both the Nifty Midcap 100 and Nifty Smallcap 100 indices have fallen by 6% in the past two sessions, indicating a growing sense of caution in the market.
Thus far this year, the correction in mid and smallcap stocks has been more significant compared to large caps. The Nifty Midcap 100 has dropped by 11.29%, while the Nifty Smallcap 100 has plummeted by 14.6%, considerably underperforming the Nifty 50 benchmark, which has only declined by 2.91% year-to-date.
Radhika Gupta of Edelweiss Mutual Fund on Tuesday took to social media platform X to clear the around SIP investment in smallcap and midcap funds.
In her thread of messages on X, Gupta underlined the importance of utilizing a balanced, diversified strategy and committing to investments for a period of at least a decade or longer.
"Since we are all trying to decipher whether to stop, start, time or play the dip, on something as simple as a SIP, some interesting data that may help," Gupta wrote.
She noted:
1. SIPping is a marathon and time makes a big diffrence.
2. Enduring during tough days and months and collecting those units cheap makes a big difference to your returns.
3. The chances of zero returns decrease dramatically with time. (This is large cap data, midcap later).
4. Skipping those crucial fall installments hurts. Think stopping a SIP now.
5. Most importantly remain goal focused. The time to get conservative is when you near your goal. Most SIPs are done with a purpos or goal in the first place.
6. Because you buy units at a low, SIP investments often recover more quickly.
7. I had shared our midcap fund has a min 10 year SIP return of 8 pc. Here is similar data for indices (not index funds because you have to reduce fees / tracking error). Again no negative returns in midcap (although the active fund had alpha), and virtually none in small cap.
8. She ended with: "Hope this helps cut out some of the noise. And for those who want to troll me for defending MFs and SIPs, I am doing my job, proudly and happily and will continue to do so. Happy SIPping."
S Naren, Chief Investment Officer at ICICI Prudential Mutual Fund, highlighted the risks associated with investing in costly stocks, even when done gradually. This noteworthy event saw a seasoned industry expert openly discussing cautionary measures.
Naren specifically warned against SIP investments in mid-cap and small-cap companies. “We think it is a clear time to take out lock, stock, and barrel from small- and mid-caps,” he said.
In his address, Naren discussed the ongoing inflows into equity schemes focusing on small-cap and mid-cap stocks, which are still pricey despite recent declines. He highlighted specific periods when Systematic Investment Plans (SIPs) resulted in losses for investors, such as during the periods of 1994-2002 and 2006-2013 when SIPs in mid-caps did not generate any returns and ultimately led to a decrease in investor funds.
Naren suggested that SIPs in these schemes may not be favourable unless held for a rare 20-year period. He recommended considering SIPs in large-cap, flexi-cap schemes, or equity-oriented hybrid products instead.