Systematic Investment Plans (SIPs) were created to provide a convenient and straightforward alternative for investors who are unable to actively manage their investment portfolios on a daily basis due to market volatility. This allows investors to not only save time but also effectively grow their wealth.
Amid discussions about whether to stay invested in SIPs of mid-caps and small-caps during market dips, Deepak Shenoy, Founder of Capital Mind, said that there is a 10-20% dip in the markets, and investors should expect such volatility in a market cycle.
"Continuing the ongoing discussion on mid-cap and small-cap SIPs. There's a lot of talk of stopping SIP in midcaps, of saying I told you so, etc. Folks, this is a 10-20% dip in the markets. This has always been normal, and should be expected. Yes, some small caps will hurt a lot, so will some large caps. This seems like strong selling, some of it illogical, some of it reasoned. I don't think recommending blind selling or not investing at this time is a great idea," said Shenoy posted on social media X.
It should be noted that several small-cap funds have shown negative returns on their one-year SIPs in the last six months. This has raised concerns among investors, with approximately Rs 35,000 crore being invested 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 experienced a 6% decline in the past two sessions, signaling a growing sense of caution in the market.
So far this year, the correction in mid and small-cap stocks has been more pronounced compared to large caps. The Nifty Midcap 100 has fallen by 11.29%, while the Nifty Smallcap 100 has plummeted by 14.6%, significantly underperforming the Nifty 50 benchmark, which has only decreased by 2.91% year-to-date.
Noting the dip in the market, Shenoy wrote: "You will find it painful but this is one of those times to hold through, and if the companies you own have good fundamentals, low debt, are in a growing industry, then markets will allow them sunshine eventually. But you have to live through the darkness to see the dawn. Sell if you can't handle the volatility, of course, markets often transfer returns from those who couldn't, to those who can. And yes, sell to rebalance - it doesn't matter if the stocks are falling, cos whatever you want to buy is falling too. Much as I pontificate, the pain for those that are seeing this for the first time is real, and the only thing I can say is that you have to live through it."
Recently, ICICI Prudential's chief investment officer, S Naren, advised investors to completely divest from small and mid-cap stocks, which has sparked considerable debate. Naren warned of potential dangers in 2025 that could rival the losses seen in the 2008-2010 period, particularly in banks and over-leveraged real estate companies.
Edelweiss Mutual Fund's CEO, Radhika Gupta, cautioned against succumbing to fear-mongering and short-term debates. In a post, Gupta emphasized the importance of maintaining a well-balanced and diversified investment strategy, and advocated for long-term investing over a minimum period of 10 years.
“The SIP was meant to be a simple savings-investment instrument for the common person. A fill it, shut it, forget it one because most people struggle to markets, market caps and SIPs,” Gupta said.
According to Gupta, monthly Systematic Investment Plan (SIP) contributions have risen to Rs 26,000 crore, indicating a significant number of investors who trust this investment strategy. This widespread trust plays a vital role in ensuring stability in the capital markets, especially when faced with significant Foreign Institutional Investor (FII) withdrawals.
Gupta also pointed out the innovative nature of SIPs, which cater to the investment objectives and regular savings requirements of Indian investors. The mutual fund industry has successfully crafted this tool, making it appealing to a diverse range of investors nationwide.
The SIP was designed to serve as an uncomplicated savings and investment tool for the average individual. It follows a set-it-and-forget-it approach, ideal for those who find understanding markets, market caps, and SIPs to be challenging.