Midcap Stocks Declined by 20% from Their Highest Point; What Should Investors Do Now?
The Nifty Midcap 150 Index has fallen by around 20% from its peak in the last year, and it’s currently at 18,061. A market expert suggests that if you already have a lot of midcap stocks in your portfolio, it might be a great decision to reduce your investment in them. However, if you don’t have any midcap stocks in your portfolio yet, the expert recommends you consider investing in them through a systematic investment plan (SIP) over a long period. This is a strategy where you invest a fixed amount of money regularly over time. Investing in SIP can be a good option if you’re comfortable with market ups and downs (volatility) and if you’re planning to invest for the long term (10-15 years).
Other experts say that midcaps have done well in recent years, which means that the share in your portfolio would have increased by now. This is a good time to rebalance your portfolio.
Analysing the Performance of Midcap Funds
In the past one month, midcap funds have decreased by 9.57% on average, and Quant Midcap Fund was the worst performer. It declined by 11.07% in the mentioned period. The loss recorded by the midcap funds was in two digits in the last three and six months.
Over the last three months, midcap funds, on average, decreased by 17.56%. The HSBC midcap fund declined by 21.92%, being the top loser among the midcap fund category. Quant Midcap Cap Fund lost around 23.74% in the last six months. These schemes dropped by 18.16% in the mentioned period.
A tax expert stated at a mutual fund distributor event that the risks of investing in stocks are expensive, even if you are buying them gradually over time using a strategy known as staggered investing. This was notable because an experienced expert clearly warned investors about the dangers of such investments, which is something that’s not always openly discussed. He further warned that investing money in the wrong instrument through SIP at the wrong time can be risky.
He also talked about the times when investing in SIPs would have lost money for investors. It was in 1994-2002 and 2006-2013 when SIPs in midcaps would not have offered any returns, and it caused losses for the investors. He further added that investing in SIPs does not sound good unless you plan to invest for at least 20 years, which is quite rare. For now, he suggests investing in safe investment options like large-cap funds through SIPs. This option is more likely to offer better returns.
Should Investors continue their Investing in Mid-cap Funds?
According to an expert, if investors have an excess of mid-cap funds in their portfolio, they might want to reduce their investment in them. It is not a good option for investors to stop their investments in SIP just to time the market. Instead of focusing on individual funds, focus on these funds from a portfolio level. This gives a better understanding of your investments. He further says that if one has a long-term investment horizon of 10 to 15 years, they can continue investing through SIP to benefit from rupee average costing (RCA).
