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Should I pause or stop my SIPs in small cap funds?

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Last Updated: Jun 03, 2020, 09.22 AM 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 have SIPs running in two small cap funds: HDFC Small Cap Fund (Rs 3,000) and SBI Small Cap Fund (Rs 6,000). In the current scenario, should I pause/ stop my SIPs in these funds and instead allocate the same amount in large cap/multicap funds?
-Neha M

Are you finding it difficult to handle the sharp fall in your investments in the small cap funds? Or do you find it difficult to handle the volatility. If the answer to these questions is yes, you should revisit your investments in small cap schemes. These schemes are extremely volatile and they are also very risky. That is the reason why they are recommended only to very aggressive investors with a longer investment horizon. Many investors realise they have made mistake only when the market hits a rough patch and these schemes turn volatile and starts losing money. So, please revisit your portfolio.

However, this is not say that small cap schemes are bad investment or one should stay away from them. They have the potential to offer superior returns over a long period. However, you have to continue with your investments and hold on to your investments over a long period to maximise returns from them. You would be able to do that only if you have the right risk appetite.

It is never a great strategy to stop/pause your investments because of a sharp fall in the market or increased volatility. In fact, the while idea of investing regularly through SIP is to benefit from volatility. When the market is down, it will help you buy more units.When the market is up, you will buy less units. Over a long period of time, this will help you to get more units and average your purchase cost. In fact, this is what helps you to maximise your wealth over a long period. If you have doubts, revisit your risk profile and ensure that you have chosen the right schemes. If that is the case, you should continue with your investments irrespective of the market conditions.
(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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