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My portfolio is down 11%. Should I stop investing in small cap funds?

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Last Updated: May 18, 2020, 01.55 PM IST

Summary If you have any mutual fund queries, message on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.

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I am 27 years old. I had started investing in mutual funds via SIP in 2017. My risk appetite is high. I have invested around Rs 4.5 to Rs 5 lakh till now. My portfolio is currently down 11%.

My SIPs are in:
ELSS: Rs 6000 (Rs 2,000 each in Franklin Tax shield, DSP Tax Saver and Aditya Birla Sun Life Tax relief 96)

Rest: Rs 10,000 (About Rs 2,000 each in Franklin India Smaller Companies, SBI Small Cap, Motilal Oswal Multi Cap 35, Kotak Standard Multicap)

I have two questions:
1. Am I too diversified considering the small amount being invested each month?

2. Should I continue SIP in small caps, considering the current situation? Should I invest large cap mutual funds instead?
-Abhilash Patil

One, since you are investing only Rs 6,000, you don't need three ELSS funds in your portfolio. You need just one scheme. Similarly, you try to limit to one or two schemes in the non-ELSS category, too.

Two, are you worried about the fall in the small category recently? Do you think you cannot deal with the extra volatility in the small cap category? If the answer to these questions is yes, you might be overstating your risk profile. You may not have a very high risk appetite as you imagine. Probably you want to take a very high risk, but your mental makeup does not allow you to do it. If that is the case, you should stop investing in small cap schemes.
Take an online quiz, and reassess your risk profile. Once you know your risk profile, stick to the mutual fund category that is suitable for you. Do not change it mid way, depending on the prevailing conditions in the market. For example, if you have a conservative risk profile, stick to large cap schemes. Similarly, you should invest mostly in multi cap schemes if your risk profile turns out to be moderate.
(If you have any mutual fund queries, message us on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.)

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