Mutual Fund SIP strategy: Continue to invest or hit the pause button?

Mutual Fund SIP strategy: The Indian equity markets continue to experience volatility, creating a challenging investment environment for D-Street investors. This has been particularly troubling for those invested in Systematic Investment Plans (SIPs), who began their investments when market levels were at record highs.

 

Notably, the benchmark NSE Nifty50 has declined by 12.29 per cent from its all-time high of 26,277 levels, scaled in September 2024. The impact has been severe for investors in the mid-and small-cap segments, with the Nifty Midcap100 index down nearly 16 per cent from its peak, and the Nifty Smallcap100 index falling around 18 per cent from its all-time high.

 

 

For now, the market sell-off has not deterred investors who have kept the faith and continued with their SIP investments in equity mutual funds in January 2025. Analysts suggest investors should continue with their SIPs even in the current markets.

 

According to the latest data from Association of Mutual Funds (AMFI), equity-oriented mutual fund (MF) schemes saw net inflow of Rs 39,688 crore in January 2025 — surpassing the average monthly inflows for the calendar year 2024.

 

However, this figure represents a 3.6 per cent decrease compared to December 2024. Notably, small-cap funds received the second-highest net inflows among the 11 equity sub-categories, at Rs 5,721 crore, marking a 22 per cent month-on-month increase. Meanwhile, mid-cap funds attracted net inflows of Rs 5,148 crore, slightly higher than the Rs 5,093 crore received in December 2024.

 

That said, market analysts remain optimistic about mid- and small-cap funds, citing that the very purpose of SIPs is to take advantage of market declines. For SIP investors in mid- and small-cap funds, analysts suggest this could be an opportunity to accumulate more units at attractive valuations, enhancing long-term returns through rupee cost averaging.

 

Rajesh Bhatia, CIO at ITI Mutual Fund, said that India is experiencing a structural bull run, with the growth story best leveraged by companies in mid- and small-cap sectors. "While these sectors have corrected amidst market volatility, it presents a great opportunity to continue with your SIP, allowing you to accumulate more units," Bhatia said.

 

As the market recovers, this could, Bhatia believes, lead to significant capital appreciation. "SIP is a strategy where timing the market is not necessary; it's all about maintaining a disciplined investment approach, which yields great results in the long run." 

For the long haul

Meanwhile, a report released by Edelweiss Mutual Fund suggests that when one-year SIP returns were negative, continuing the SIP and remaining invested for a longer duration would have not only recovered the losses, but also generated positive returns.

 

According to the Edelweiss report, investing when the market is relatively expensive (i.e., trading at a higher PE) and staying invested, while continuing SIPs for the long term, has delivered strong SIP returns over 3, 5, or 10 years. "Continuing SIPs during market corrections leverages the rupee cost averaging benefit, potentially improving long-term returns," it added.

 

Meanwhile, Gurpreet Sidana, CEO of Religare Broking, attributes the recent correction largely to foreign institutional investor (FII) sell-offs amid global uncertainties. Such sharper declines in mid- and small-cap segments, Sidana said, are inevitable, given their higher beta and inherent volatility.

 

Sidana further believes that market corrections are not disruptions and are inherent to equity investing. "Historically, mid- and small-caps have demonstrated resilience and robust growth. Now is the time to reassess fund fundamentals. One should stay aligned with their risk appetite and financial goals and maintain discipline," Sidana added.