Worried and anxious about the current volatility in the Indian equity market, where the small and midcaps (SMIDS) in particular have been hammered, investors are now wondering what they should be doing with the existing mutual fund SIPs. Many investors, in panic, have already discontinued or stopped their SIPs.
The Association of Mutual Funds in India (AMFI) data for January 2025 reveals that the number of Systematic Investment Plans (SIPs) discontinued has outdone the new SIP registration. This is the first time we are witnessing a reversal in trend since SIPs became household name and today comprise 19.6% of the total mutual fund industry assets.
Table: Number of New SIPs Registered v/s Number of SIPs Discontinued (SIP Count in Lakh)
Although SIP contributions have remained consistent, the anxiety of investors is evident, with the marginal drop in inflows for January 2025.
Given that the equity market has been volatile and corrected further from its peak, it wouldn’t be unsurprising if SIPs flows decline further for February 2025 and some investors discontinue SIPs. This would more so be the case with first-time equity investors who entered the market during the COVID-19 pandemic times and haven’t witnessed longer market cycles.
Many investors are finding their portfolios under pressure with unrealised losses as the market correction unfolds. This is particularly the case if the portfolio is skewed towards the Small Cap Funds and Mid Cap Funds, as their underlying indices — the BSE Mid-Cap and Small-Cap Index — have corrected nearly 20% since their respective peak.
Speaking at the 15th IFA Galaxy event, S. Naren, the CIO of ICICI Prudential Mutual Fund highlighting valuation concerns said, “We think it is time to take out lock, stock and barrel from small and mid-caps.” He has also challenged the notion that SIP always yields good returns.
Coming from a veteran fund manager, this statement has further frightened investors.
Should You Really Stop SIPs in Equity-Oriented Funds Now?
You see, when SIP-ping into mutual funds, what matters or needs to be considered are two things: 1) when you started the SIP, and 2) how long is your investment horizon.
The graph above depicts how in the corrective phase of the Indian equity markets from March 2015 to February 2016,
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