The decision to stop or continue your SIP (Systematic Investment Plan) in a small-cap mutual fund depends on several factors.
Here are a few considerations to keep in mind:
1. Investment Horizon: Small-cap funds are known to be more volatile compared to large-cap or diversified funds. If you have a long-term investment horizon (typically 5 years or more), short-term fluctuations may not be a cause for concern. Small-cap funds have the potential to deliver higher returns over the long run, but they can experience periods of underperformance.
2. Risk Tolerance: Assess your risk tolerance and capacity to withstand short-term losses. Small-cap funds can be more volatile, and a negative return of -20% is not uncommon in such funds during certain market conditions. If you have a high tolerance for risk and can stay invested for the long term, you may consider continuing with your SIP.
3. Fund Performance: Evaluate the performance of the small-cap mutual fund in comparison to its benchmark index and peers. A negative return of -20% should be viewed in the context of the fund’s historical performance and the overall market conditions. If the fund has consistently underperformed its benchmark and peers, it may be worth reassessing your investment.
4. Fund Manager and Strategy: Consider the expertise and track record of the fund manager. Has the fund manager demonstrated the ability to navigate challenging market conditions and deliver competitive returns over the long term? Review the fund’s investment strategy and philosophy to understand if it aligns with your investment goals.
5. Diversification: Assess the diversification of your overall portfolio. If you have invested in multiple mutual funds across different asset classes and market segments, the negative performance of a single small-cap fund may have a relatively smaller impact on your overall portfolio.
6. Professional Advice: Consult with a financial advisor or investment professional who can provide personalized guidance based on your specific financial goals, risk tolerance, and investment horizon. They can help you evaluate the performance of your small-cap fund in the context of your overall investment strategy.
Remember, investment decisions should not be based solely on short-term performance. It is essential to consider your long-term goals, risk tolerance, and the fundamentals of the fund before making any changes to your investment strategy.
