ICICI Pru CIO Cautions Against Small-Cap and Mid-Cap Funds: Should Investors Rethink SIPs in Mutual Funds?

Investors are facing negative SIP returns as small-cap and mid-cap funds experience a downturn in the equity market. With SIP returns on a one-year basis for many of these funds showing disappointing results, the advice from ICICI Prudential Mutual Fund’s Chief Investment Officer (CIO), S. Naren, has raised important questions on whether investors should continue their investments in these market segments.

Points to Note:

• SIP Returns for Small-Cap Funds have been underperforming, with significant negative returns reported in several schemes.
• ICICI Prudential CIO suggests exiting small-cap and mid-cap stocks amid market volatility and current negative returns.
• The SIP route remains a popular investment strategy, but returns for small-cap and mid-cap schemes have been underperforming in recent months.
• ICICI Prudential Mutual Fund cautions that investors should consider their asset allocation, risk appetite, and goals before deciding whether to stop their SIPs.

Small-Cap and Mid-Cap Fund Performance in 2024

Mutual fund investments through the Systematic Investment Plan (SIP) route in small-cap and mid-cap funds have seen a slowdown, with many schemes showing negative returns over the past year. According to data from ACE MF, 58% of large-cap funds and 70% of small-cap funds are showing negative returns for SIPs over a one-year period.

• The Nifty Smallcap 250 Index recorded an 11.68% decline over six months but maintained a 5.23% positive return over one year.
• The Nifty Midcap 150 Index saw a 9.19% decline over six months but posted a 10.99% gain over the last year.

Should You Continue SIPs in Small-Cap and Mid-Cap Funds?

Despite the negative short-term returns, experts like Nirav Karkera, Head of Research at Fisdom, suggest that SIPs are built for such market volatility. They emphasize the importance of continuing SIPs, especially if you have a long-term strategy and confidence in the fund manager.

Radhika Gupta, CEO of Edelweiss Mutual Fund, adds that SIPs are a long-term investment tool meant for everyday investors, advising to stay calm and focus on selecting a good manager and holding the investment over a 10-year horizon.

Impact of SIP on Large-Cap Funds

While small-cap funds are facing headwinds, large-cap funds have performed relatively better. Many large-cap mutual funds show positive SIP returns, with Motilal Oswal and SBI Bluechip funds being standout performers in the long-term SIP category.

Time to Rebalance Portfolios?

As small- and mid-cap funds show underperformance, experts suggest a portfolio rejig. According to Pawan Bharaddia, co-founder of Equitree Capital, valuations of mid-cap and small-cap stocks have risen too high, making them less attractive in the near term. It might be prudent to diversify or consider large-cap funds or even fixed-income investments for near-term goals.

Highlights:

• Negative SIP returns for many small-cap and mid-cap mutual funds.
• ICICI Pru CIO recommends caution in continuing SIPs in small- and mid-caps.
• Experts advise portfolio rebalancing towards large-cap or safer investments.

Investors are encouraged to regularly assess their SIP investments, keeping in mind the market conditions, risk tolerance, and long-term goals before making any changes.