Is it time to stop your SIPs? Perhaps
I have shown how these segments, and other “racy" segments account for a large chunk of the flows. Here are the updated numbers for the quarter ended September 2023: Just under 75% of the monies is flowing into funds (marked in bold), which I would call are largely operating in the racy segments of the markets. Now, in case some of you are wondering whether this trend has changed in recent months.
Well, here’s the data for November: Well, it has. From a total of 75%, now only about 65% of the monies is going to the racy segments. This is good news.
But is this enough to suggest that you should continue the path you have chosen when it comes to your mutual fund portfolio? To my mind, in most cases, the answer is NO. You see, where I am coming from is this: Far too many investors are overexposed to the small, mid, and other racy segments of the market. And while this has worked to your advantage so far, it has created a situation where more than a fair chunk of your stock market investments are classified as very/extremely risky.
Your allocation has gone for a toss. Now, if you have the appetite for large drawdowns, temporary and permanent, well, you could perhaps stick to your allocation. But the thing is that most investors do not have the temperament to deal with such situations.
What usually happens is you buy high and sell low. Other than the temperament, there’s one other aspect of cycles that’s unique to small caps perhaps. And that’s when money flows in, its usually a case of too much money chasing too few stocks (small companies, hence).
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