Investment Mantra: SIP offers cheaper mutual fund units and is a better option for mid- and small-cap stocks

SEBI wants to protect investors. Therefore he wrote a letter to the fund houses on 27 February. In this, concerns were expressed on mid-cap and small-cap. It said fund houses should formulate policies to protect the interests of investors.

Mar 18, 2024 - 10:40
Investment Mantra: SIP offers cheaper mutual fund units and is a better option for mid- and small-cap stocks

Analysts say that the valuation of mid and small-cap stocks is still very high. There has been a lot of investment in both of these in the last few years. However, they have also given very high returns. In such a situation, if someone invests after looking at past returns, it can be a risk. SEBI has recently taken this decision to protect investors from risk. Experts say that if you want to invest in mid and small-caps then you should not invest lump sum at all. You can do SIP for the long term. Currently, valuations have fallen, so you will get mutual fund units at cheaper prices. Keep in mind, that the investment should be for at least five years.

SEBI seeks to safeguard investors. Thus, on February 27, he sent a letter to the fund houses. This raised concerns about small- and mid-cap stocks. It stated that fund houses ought to create guidelines to safeguard investors' interests. Fund houses were also aware of the high valuations. SEBI requested that the stress test results be uploaded to the website by March 15. Even though fund houses used to perform this work at their level in the past, it was never disclosed to the public. The market erupted when the fund houses were forced to go public this time.

A stress test means that if suddenly there is a huge outflow in mid and small caps, then how can it be dealt with. In how many days can it be completed with higher withdrawals? How many days is the liquidity in the stock? Seeing the huge investment that has come in both these segments and the shocking returns, new investors are coming. Whereas there is not much liquidity in both of these segments. In such a situation, it will also have to be ensured that the fund houses will invest the money coming from investors.

In February, the majority of fund houses sold smallcap shares. A few people purchased midcap. These two markets have seen the majority of recent fund house investments. These shares have yielded returns of 70–80% as a result of overbuying. Retail investors kept making investments after seeing this return. There is a chance that these shares could be drastically withdrawn at any point in this scenario.

According to market expert Anurag Shah, invest cautiously given the fluctuations in mid and small-cap shares. Right now the valuations are quite high, till they do not fall, one can adopt the route of SIP investment for the long term.

Muskan Kumawat Journalist & Writer