Systematic investment plans were designed to make investing simple — a "fill it, shut it, forget it" approach for those who don't want to track markets daily, according to Radhika Gupta, chief executive officer of Edelweiss Asset Management.
With the recent discussion around the market volatility surrounding mid-cap and small-cap funds, balance is the key. Even an average flexi-cap fund has around 30% allocation to mid- and small-caps, and they are an essential part of the mix, Gupta said.
Market cycles can distort perception — If you look at returns from the top of the cycle to the bottom (say, 2006–2013), they may seem discouraging, she added.
The SIP was meant to be a simple savings-investment instrument for the common person. A fill it, shut it, forget it one because most people struggle to markets, market caps and SIPs.
Here are 4 things investors may want to remember in this debate about mid-cap small-cap SIPs:… pic.twitter.com/t34K0O25NmLiquidity matters, but it can be managed. Her fund, for instance, disclosed liquidity numbers even before regulators mandated it — without hoarding large-caps or sitting on cash, Gupta said.
The best strategy is holding the SIPs for over 10 years. Gupta's EW mid-cap fund (acquired from JPM in 2007) has never had negative 10-year returns, she added. Even at the lowest point, lump sum investors made at least 10%, while SIP investors saw 8% returns.
Gupta's takeaway? Ignore the short-term fear-mongering. Find a good fund manager, invest sensibly, and stick to it for the long haul.
This tweet followed a recent investment advice by ICICI Prudential Mutual Fund's Executive Director S Naren, which sparked a debate in the mutual funds industry. Speaking at an event organised by IFA Galaxy, a Chennai-based association of mutual fund distributors, Naren advised investors against SIPs in small-cap and mid-cap mutual funds given the current market volatility.
Naren said the valuations of companies in these funds are "absurd" and investors should consider redeeming their investments soon. "We think it is time to take out lock, stock and barrel from small- and mid-caps," he said.
According to Naren, while a significant portion of the risk in such funds used to be with banks and larger institutions, today it has shifted to retail investors.
"All the risk is being borne by investors like you. I don't think either investors or wealth managers have fully realised this yet. It's something I urge everyone to think about," he added.
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