My mutual fund portfolio is in the red. I have heavily invested in MFs through SIPs since 2020. Should I cease now and reserve my savings in risk-free tools?

Over the past five years, since the Covid pandemic, I have actively engaged in Systematic Investment Plans (SIPs) and have been content with the returns, particularly in the post-Covid period. However, in recent months, there has been a noticeable decrease in profits. Despite my apprehensions, my financial advisor has assured me that the current situation warrants continued investment without worry.

It appears that some investors, including High Net Worth Individuals (HNIs), have opted to pause their SIPs and shift their investments towards fixed-income instruments such as Fixed Deposits (FDs) to realign their asset allocation. Moreover, there is a segment of investors who are redirecting their future SIPs towards debt and fixed-income instruments.

Currently, I am investing 2.5 lakhs per month in SIPs and would appreciate any insights or advice on this matter.

Advice by Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance

Many equity market experts believe that mid and small-cap stocks are currently overvalued, leading to a downturn over the past six months. This phase is often referred to as a valuation correction. Given this scenario, small-cap stocks may remain volatile, while large-cap indices like the Nifty 50 are expected to offer more stability.

For investors seeking better portfolio stability and growth, shifting some allocation toward large-cap funds is advisable. However, for those looking for a dynamic and flexible approach, the flexi-cap category can be a good option, as fund managers adjust allocations across market caps based on market conditions.

On the fixed income side, expectations of an RBI interest rate cut this year may result in attractive returns from fixed-income instruments. This is why some investors, including HNIs, are shifting towards debt investments like fixed deposits and other fixed-income avenues to balance their portfolios.

That said, the right asset allocation depends on your individual financial profile, including age, existing assets and liabilities, dependents, income, and financial goals. A personalized strategy is crucial to ensure long-term financial success.

If you’d like a more tailored recommendation, consult a SEBI registered financial advisor.

Investment through SIPs

The success of SIPs hinges on maintaining investment regardless of market conditions, rather than trying to time the market. Historical data has consistently shown that continuous investing, even during periods of volatility, leads to better outcomes. Pausing or halting SIPs during market declines goes against the core principle of this strategy and can harm wealth accumulation. In reality, turbulent markets present an opportunity to acquire more units at lower prices, potentially improving long-term returns.

Ultimately, SIPs offer a structured approach to investing, allowing individual investors to systematically engage in the market. By remaining dedicated to SIPs instead of trying to time the market, investors can experience more stable and fulfilling financial growth. Consistency is the foundation of successful investing.