Should You Exit Midcap Fund ?

Recently, CIO ( Chief Investment Officer) of a major Asset management company made a public statement to Stop SIP in midcap & small cap funds, he also went on to suggest exiting the funds at these levels.

Recently, CIO ( Chief Investment Officer) of a major Asset management company made a public statement to Stop SIP in midcap & small cap funds, he also went on to suggest exiting the funds at these levels.

Let me confess upfront, I have a huge respect for the said CIO and in no manner I wanted to criticize his opinion.

However I was wondering if he is making such a bold statement then certainly we need to deep dive into the data.

So I took an old midcap fund called Franklin Prima Fund to check how the SIP in the fund has performed in different time horizons and in different market conditions. I was curious to see how the fund has done in a prolonged bear market and even when market has been in a narrow range for 6-7 months.

Chart 1 -

Rs 10,000 SIP per month in Franklin Prima Fund ( Midcap Fund)

Chart 2 -

Rs 10,000 SIP per month in Franklin Prima Fund ( Midcap Fund)

Well, what I clearly conclude is staying invested in fund for long term is the only sure shot way to generate good returns, create wealth and achieve your financial milestones.

Check chart 1, The five SIP period of 1994-1998 ( post Harshad Mehta scam) have shown a mild negative returns of -1.27% XIRR where your 6 lakhs of investment had become 5.80 lakhs, unwanted scenario but we cannot avoid or time the market situation, however had you stayed 12 months more in the same scheme then your XIRR goes on to 34% where your 7.20 lakhs of investment becomes 19.84 lakhs, isn’t that fabulous reward for your patience ?

Then came the dot com bubble bust where returns got hammered but mind you, the returns are still positive, fast forward to 24 months again your returns comes back to normal range of 14%....story goes on.

Likewise chart 2 for SIP started in the mother of all rallies 2003 To 2007, your SIP gave crazy returns of 53.62% XIRR, where your 6 lakhs became close to 21.49 lakhs, a similar phase for us from 2020 to 2024. However the crash followed where your SIP returns came down to 5.6% in year ending 2008,

look one could argue had one exited in 2007 then the valuation would have been protected, you are right…However practically hardly any investor listens to an advisor nor does the advisor wants to exit in a rallying market especially when your goal post is still years away. Practically speaking hardly anyone exited in 2007 so we had to go through painful period of 2008 global financial crises (GFC), just see the table what transpires in years to come say Dec 2009 your portfolio again witnessed an extra ordinary growth of 25% XIRR…. The story continues and will continue for years to come.

The fact of the matter is no investor, advisor, MF distributor nor can the fund manager time the market in every crash and at bottom, you can be lucky once or twice but then being luckily right with those two times can give your wrong notion of confidence which can probably leave you out of market during the next bull market or probably fall the most in the next crash.

The conclusion for me is very simple, since no one can time the market exactly it’s better to stay invested for long till your long term goal post dates done come near.

At times stop checking your MF portfolio for months and then witness your portfolio grow multiple times.

Had that CIO said this statement in September 2024 I would have still been tempted to book some gains to asset allocate, unfortunately he makes the statement when the midcap is already down 20% from the peak.

Ignore the noise and narratives outside, put on to the headphone and listen to your favorite music.

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