Mutual fund SIP investments underperforming? Here’s why investors should stay invested despite short-term losses

Market corrections and short-term volatility often leave new investors worried, especially those who started investing in the last one to two years. With several portfolios currently showing negative returns, a common question is whether to continue investing, rebalance the portfolio, or exit underperforming funds and which mutual fund categories can help cushion volatility and limit the impact on overall returns.

A similar query came from Dipu Singh, an investor from Kolkata and a viewer of The Money Show on ETNow, who is a relatively new investor and started investing in April 2025, has built a diversified portfolio across categories including large cap, mid cap, small cap, and flexi cap funds.

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He has got ICICI Largecap, Motilal Midcap, HDFC Midcap, Bandhan Smallcap, Parag Parikh Flexicap, JioBlackRock Flexicap. He has been investing for almost a year now and the funds are in negative and he plans to invest for more 10 years

Expert Samir Shah, Founder, Investa Financial highlighted that having multiple funds in the same category may not always add value. Singh has two mid cap funds in his portfolio of which Motilal Oswal is a concentrated fund which suits aggressive investors and HDFC Midcap is an all time good fund, Shah said.

Shah further said that if Singh is having a high risk appetite, in that situation he can continue with Motilal Oswal Midcap Fund, otherwise he can stop the SIP and divert the fund to HDFC Midcap.

A similar approach applies to flexi cap funds. “There is no need to hold multiple flexi cap funds, especially when one well-established and proven fund is already part of the portfolio. Investors should prefer schemes with a strong track record rather than adding newer funds without sufficient history,” he added.

Facing negative returns? Stay invested, don’t panic

A key concern among investors is seeing their portfolio in the red. This often leads to impulsive decisions such as stopping SIPs or exiting investments altogether moves that experts strongly discourage.

Shah explained this using a cricket analogy, as IPL fever is around. “Just like in a match where not every over yields runs, in investing too there will be phases of low or no returns. But over a full innings or investment horizon, the overall performance tends to even out,” he said.

He added that in SIP investing, consistency is more important than short-term performance. “There will be months or even years where returns may be muted or negative, but over a longer period, say 7 to 10 years, investors can expect average returns in the range of 12% to 15%, provided they stay invested.”

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Why stopping SIPs can hurt long-term returns

Experts caution that pausing investments during volatile phases can significantly impact long-term wealth creation. Missing out on even a few strong market days can reduce overall returns meaningfully.

“Studies have shown that missing a limited number of strong market days can have a noticeable impact on portfolio returns. Staying invested ensures that investors benefit when markets recover,” Shah noted.

According to the expert, certainly, generally what we have seen is there are studies which have been published. If you have missed only 22 good days where you have not invested, you have not invested and you have stayed out of the market in that situation there is a 10% or 12% good impact on your portfolio.

Shah further said that this is not a new thing for the market. If you see the history of the market, the downfalls are always there. The volatility will be there. And before investing you should always be prepared about that.

He emphasized that volatility is not new to markets and should be expected. “Investors must be mentally prepared for three things—low returns, negative returns, and phases of no returns. These are part of the investment journey,” he said.

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Short-term underperformance does not necessarily indicate a flawed investment strategy. For long-term goals, staying invested, avoiding unnecessary duplication of funds, and maintaining discipline are key. Instead of reacting to temporary market movements, investors should focus on selecting quality funds and giving them time to deliver results.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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