Mitigating Risks: Experts' Strategy For Mid, Small Caps Amid Market Dips And Rebounds

Amid unpredictable rallies and dips in the markets, investors' calls about when to stay invested and when to book profits is key. Both midcap and small cap indices have demonstrated notable rebounds in recent period, with Nifty Smallcap 250 rising 16.4% and Nifty Midcap 150 rising 15.6% since April 1.

This recovery shows that investors who remained invested through the turbulence likely captured these gains, while those who exited may have missed the moment to re-enter.

Mohit Gang from Moneyfront sheds light on the performance differences within midcap and smallcap funds. He attributes the outperformance of certain midcap funds to their AUM size which is typically between Rs 6,000 to Rs 10,000 crore, allowing for greater agility.

Funds positioned to benefit from rate cycle reversals, such as non-PSU banking and NBFCs, have also seen strong performance. He explained that underperforming funds might have been heavily reliant on momentum strategies that fell through when market conditions shifted.

For first-time investors, Mohit Gang suggests a balanced approach of active and passive strategies, recommending one active fund and one passive index fund in both midcap and smallcap categories.

He stresses the importance of consistency and avoiding frequent strategy changes based on short-term fluctuations.

Vinit Iyer, on the other hand, leans towards actively managed funds for their potential to outperform over the long haul, citing Kotak Emerging Midcap Fund and Nippon Small-cap Fund as examples.

Vinit Iyer, certified financial planner at Prudeno Wealth, advocates for a flexible investment strategy. His approach involves a systematic withdrawal plan or an SWP from fixed income schemes to fund systematic investment plans SIPs into equity schemes.

He explains that this method offers greater adaptability compared to direct systematic transfer plans or STPs. These often limit transfers within the same fund house.