I have been invested in a mid-cap fund through SIP for the past three years. Should I redeem some units as I have got very good returns? —Vivek Kashyap Since the lows of March 2020, equities have rallied sharply on the back of surplus liquidity and optimism over economic recovery amid vaccine roll-outs to mitigate […]
I have been invested in a mid-cap fund through SIP for the past three years. Should I redeem some units as I have got very good returns?
Since the lows of March 2020, equities have rallied sharply on the back of surplus liquidity and optimism over economic recovery amid vaccine roll-outs to mitigate the COVID-19 pandemic resulting in rich valuations particularly in the mid-cap and small-cap segment. The broader market (S&P BSE 500 TR INR) has delivered 124% as of July 16, 2021, while the mid-cap segment (S&P BSE Midcap TR INR) has delivered 141% and the small-cap segment (S&P BSE Smallcap TR INR) has delivered 201% return. However, on a 3-year basis, the performance gap across market-cap segments is not very stark with the large-cap segment delivering 14.83% annualised return, while the mid-cap and small-cap segments delivering 16.69% and 19.99%, respectively.
Equity markets react to various domestic and global economic factors, and often witness sharp cycles with both strong up-move phases and down-move phases. Over long horizons (10+ years), equities can be expected to deliver around 4-5% over the long-run inflation rate. Maintain a diversified equity port-folio with a predominant allocation to the large-cap segment followed by alloc-ation to mid and small-cap segments in line with your risk appetite. You may continue to stay invested, if your current allocation to the mid-cap segment is in line with your recommended mix and the investment horizon is long. You may even look to allocate further when any corrections take place.
Investors should stick to their long-term strategic asset-allocation which in turn depends on their risk appetite and not try and time the markets. You can consider re-balancing your asset-allocation back to the target weights in case of any significant drift due to market movement. Withdrawing any corpus would lower your portfolio value to the extent of the amount withdrawn and you might lose out on any subsequent gains on the withdrawn corpus that would have accrued till the end of your investment horizon. One needs to stay invested in equities to enjoy the benefits of compounding and ‘time in the market is more important than timing the market’.
The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to email@example.com