SIP, SMID, and the fine art of not overthinking it

Lately, with all the chatter about SIPs and SMIDs (small- and mid-caps), I've been torn between two thoughts. One is the classic "Silence is golden." The other, courtesy of Muhammad Ali, is "Silence is golden... until you can think of a good answer."

I'm unsure if what follows is a "good" answer, but here's my take.

The SIP debate: Stop overcomplicating what's simple

Everyone has an opinion - some extreme, some well-reasoned, and some based on decades of experience. If someone with an impressive track record shares a view, we can only listen with an open mind. But listening doesn't mean agreeing. A different view doesn't invalidate your own.

By now, we've all seen enough tables, charts, and Twitter threads on the benefits of SIPs across different market cycles - no need to go there again.

Instead, let's talk about what bothers me - people framing SIPs in the context of market timing.

SIP is not a market-timing tool. SIP exists because market timing doesn't work.

It's the antidote for every investor who has - at some point - tried to time the market, failed miserably, and learned the hard way that it's an exercise in frustration, not fortune.

If someone believes there's a "right time" to stop an SIP, then I have one question: Do they also have a magic wand to tell us when to start again?

If so, will they call every investor who stopped, convinces them to restart, and ensure that everyone's definition of "overvalued" or "undervalued" aligns perfectly?

If yes, I don't understand the equity markets at all. If everyone agreed on valuations simultaneously, there would be only buyers' orders. And well, that's not how markets work.

The only thing that matters in SIP investing

Forget all the market noise. It doesn't matter how many months, years, or decades you run an SIP. The only thing that truly matters is how long you stay invested with your already invested money.

The longer you stay invested, the better your chances of success.

SIP or no SIP, the only principle that works most of the time is this: Time is your best friend. When introducing "timing" into the equation, you're making your life unnecessarily complicated.

SMID: A few simple questions to ponder

Now, onto SMID — a topic that invites absolute devotion or outright fear. Instead of sweeping statements, let's break it down with some simple questions:

• In every market cap, sector, and theme, aren't some stocks that seem overvalued and others that don't?
  
• Has this ever not been the case?
  
• Are undervalued stocks harder to find today than a year ago? Sure.
  
• But have they disappeared? No.
  
• Are all large caps undervalued? Nope.
  
• Are all SMID stocks high-growth? Nope.
  
• Are all large-caps slow growth? Again, nope.

Everyone's answer will vary in degree, but I'll bet no one can say "0%" or "100%" to any of these questions.

If true, how does one logically conclude that SMID investing is right or wrong? Markets don't work in absolutes.

The simplest approach? Let the experts handle it

For most investors, the easiest answer is Flexi-cap, Multi-cap, or Multi-asset funds. Why? Because, as they say, leave it to the professionals when in doubt.

Fund managers do this for a living and have decent knowledge, experience, and data. Trying to outguess them with gut feelings, WhatsApp forwards, or index levels is, well... optimistic at best.

Final thought: Keep it simple

• SIP is not about timing. It's about discipline and staying invested.
  
• No market segment is entirely good or bad. Choose the mix that works for you.
  
• For me? I lean towards Multi-cap/Flexi-cap with a healthy dose of Value.

Because investing isn't about getting everything right; it's about making fewer mistakes - and the biggest mistake of all? Overthinking the obvious.

The author is the Managing Director & CEO of Mahindra Manulife Investment Management.

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Also read: Small-cap mutual funds are down 13 per cent. Should you halt, continue or increase your SIPs?

This article was originally published on February 13, 2025.