The market scenario can change completely in just a few months. Till September 2024, the Indian stock market was making new records every day. But since then, the situation has changed. Nifty 50 is down by about 14% from its peak. Similarly, the Nifty Midcap 100 has fallen by more than 18% in the last 6 months, while the Nifty Smallcap 250 index has dived over 22% from its peak touched on December 11 last year.
This stock market mayhem has left a severe impact on mutual fund investor portfolios. Many SIP investors say that their portfolio has shrunk by 20–30%. Especially investors whose money was invested in mutual funds of small and medium-sized companies (smallcap and midcap) have been impacted more. At the same time, investors who had invested in funds of large companies (largecap) and tax-saving ELSS funds suffered slightly less loss.
If we look at the average return generated by various mutual fund categories this year, all of them have given negative returns. Smallcap funds have given (-)22% average returns, followed by midcap funds at (-)15.37% and largecap funds at (-)6.92%.
Also read: Stock Market Crash: Small-cap funds take the biggest hit! Is your investment at risk?
We spoke to some mutual fund investors to understand their portfolio allocations and how their SIPs have performed in recent times.
Amit Sharma, 32, a resident of Delhi, has invested 70% in mutual fund schemes of small and medium companies (smallcap and midcap). The remaining 20% is invested in largecap and ELSS funds, while 10% is invested in debt funds. Due to the recent decline, the value of his portfolio has fallen by about 28%.
Similarly, Neha Arora, 31, an IT professional in Noida, has also invested most of her SIP portfolio in smallcap and midcap funds. She says that her investment has come down by 25% in the last few months.
At the same time, Ajay Verma, 47, a Delhi-based event management professional, saw his portfolio drop by about 15% in the last 6 months. Ajay has invested 70% of his investments in largecap and ELSS funds, while the remaining 30% is in midcap and smallcap.
It is clear from all these cases that the fall in the market has affected every category of investors.
This massive erosion in the value of their portfolios has forced SIP investors to think – what to do next? Should we continue SIP or stop it? How to recover from this decline?
Also read: How investors under 35 yrs are building wealth with SIPs
Let us know what could be the right strategy for investors in the current situation.
SIP is a long-term game, don’t be disappointed
SIP i.e. Systematic Investment Plan is designed for the long term. There will always be fluctuations in the market, but this strategy helps investors to take advantage of different market cycles.
If you withdraw the investment in panic, then you may have to lose potential profits in the long term.
What should investors do now?
- Do not sell investments in panic
Selling investments in panic is not the right strategy. History is witness that the market corrects itself over time and investors who have patience get good returns.
- Balance the portfolio
Investors who invest only in smallcap and midcap need to bring balance in their portfolio. Risk can be reduced by investing in largecap, flexicap, value-Based and hybrid Funds.
- Continue SIP
When the market falls, SIP investors get a chance to buy more units at a lower price. When the market goes up, these units will give higher returns. For example, if you are investing Rs 10,000 every month and the NAV has fallen from Rs 500 to Rs 400, you will be able to buy more units than before. This will benefit in the long term.
- Consider hybrid funds
Hybrid funds, which are a mix of equity and debt, help maintain stability in the market. This can be a good option for investors who want both stability and growth.
Also read: How to invest in mutual fund SIPs the right way?
Summing up
Market declines can be worrisome, but it is also an opportunity for investors to review their portfolios and invest wisely. Instead of panicking, it is important to maintain patience and discipline. The right asset allocation, continuing SIPs, and identifying good opportunities in market declines can prove beneficial in the long term.
Remember, the markets will always be volatile, but history shows that patient investors generate better returns in the long run.