Mutual Funds: As small, mid cap funds fall sharply, is this the time to stop your SIP?

In 2025, Nifty 50 has lost around 2 per cent, whereas Nifty Midcap 150 index declined by 7 percent, and Nifty Smallcap 250 index 9 per cent. Read this Mint article to know more about the reasons for the fall.

In view of this sharp fall, there are concerns around whether it makes sense to invest in the mid and small cap mutual funds. Some investors are in a dilemma whether they should continue their SIPs in mid and small cap mutual fund schemes.

Should you, therefore, stop your SIPs (systematic investment plan) in mid and small cap funds on account of recent correction?

Experts give a nuanced view on this. They say that small and mid-cap mutual funds tend to stay volatile. Therefore, only those investors who have a high-risk appetite are recommended to invest in small and mid-cap funds.

Small caps are among the riskiest mutual fund categories. Mid-caps are also the ones where risk is higher than basic large cap stocks. “These categories are meant for long term investing . Investors should invest in these funds only after analysing their own risk-taking ability,” says Preeti Zende, founder of Apna Dhan Financial Services.

Another expert we spoke to emphasised that the allocation to small and mid caps should not exceed 30-40 percent of portfolio.

“Small caps should be part of the portfolio and rally in these categories is very high. So, anyone who has 7 to 8 years of time horizon can relook at overall asset horizon. It is important that this allocation to small caps does not cross 30-40 percent of portfolio,” says Sridharan S., a Sebi-registered investment advisor and founder of Wealth Ladder Direct.

Past performance

When you recall the past performance of small and mid-cap mutual funds, you will realise that certain years have delivered massive pain, but only to improve in the following year.

“In 2008, mid and small caps declined by up to 70 percent. The following year, there was a jump of 70 percent. Also, this category gave an absolute return of up to 100 percent in the past three years. Therefore, 20 percent decline now should not bother you if you invested during that time,” adds Sridharan.

“In the last bull run, mid and small cap, gave fabulous returns and were at an all time high. So, correction was due now,” adds Zende.

Word of caution

One word of caution which investors can follow is that if they want to start their investment journey in the small and mid-cap funds now, they may want to postpone it on account of high valuation.

“One should always bear in mind that the mid and small caps are highly volatile. The rally will be on a higher side which should remain in line with the financial plan. If someone is saving for his child’s education 10 years down the line, and if the risk appetite allows, then one should opt for it,” Sridharan adds.

“If you are investing in these funds for long-term, allocation is upto 20 to 25% of total investments, then you can continue your SIPs,” Zende adds.

Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision.

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