Samvat 2083: How investors should approach SIPs, mutual fund switches and portfolio rebalancing

The beginning of a new Samvat year is an opportunity for investors to review their mutual fund portfolios, assess their asset allocation and check whether their investments remain aligned with their financial goals.

With market participants expecting earnings growth to drive equity returns in Samvat 2083, investors may need to focus more on fund performance, portfolio quality and investment discipline than on short-term market movements.

Raamdeo Agrawal, Chairman and Co-Founder of Motilal Oswal Financial Services, an Indian financial services firm, sees the potential for strong market returns over the coming year, citing relatively low valuations and higher earnings growth. He also identified currency stability, a possible decline in crude oil prices and the return of foreign investors as potential market drivers.

Avinash Agarwal, Senior Vice President and Head of Equity at Bandhan Life,  an Indian private life insurance company, expects moderate and selective returns, with earnings growth likely to be the primary driver. He believes banking and financial services, healthcare, infrastructure, select industrials and consumption-oriented businesses could offer opportunities, subject to valuations.

But what should individual investors do with their existing investments?

Should you continue SIPs in mutual funds that are lagging?

A mutual fund should be compared with its own benchmark and category peers, not simply with the Nifty 50, said Aditya Agarwal, Co-Founder of Wealthy.in, a wealth management platform for mutual fund distributors.

He cited the difference in recent performance between large-cap and small-cap funds. Over the month under consideration, Nifty 50 index funds gained around 6%, while the median small-cap fund declined about 3%. However, on a year-to-date basis, the median small-cap fund gained around 7.5%, while Nifty 50 index funds remained down about 8%.

This highlights why investors should avoid judging a fund on the basis of a single month’s performance.

If a scheme is fundamentally sound and is lagging because its investment category is temporarily out of favour, continuing the SIP may be reasonable. However, if a particular category has become overweight in the portfolio, investors can redirect future SIP instalments towards underweight categories instead of immediately redeeming existing investments.

When should you switch an underperforming mutual fund?

Agarwal said investors should examine whether a fund has consistently underperformed its benchmark and category peers across different market conditions.

A scheme that trails during a rally but falls less during a correction may simply be following its investment strategy. However, a fund that consistently underperforms during both rising and falling markets warrants closer scrutiny.

Investors should also examine rolling returns across multiple three-year periods, changes in fund management, deviations from the stated investment strategy and sharp increases in fund size, particularly in less liquid market segments.

Multiple warning signs persisting over an extended period could justify switching, rather than a short-term performance gap alone.

What does switching a mutual fund mean for your taxes?

Switching from one mutual fund scheme to another is treated as redemption from the existing scheme and a fresh investment in the new one. This can trigger capital gains tax and exit loads.

Under current rules, short-term capital gains on equity-oriented funds, for units held for 12 months or less, are taxed at 20%. Long-term capital gains on units held for more than 12 months are taxed at 12.5% on aggregate eligible gains exceeding ₹1.25 lakh in a financial year.

Exit loads vary across schemes and depend on their respective terms.

Agarwal suggested considering these costs before switching. Investors can also redirect future SIP instalments without redeeming existing units, avoiding an immediate tax or exit-load event.

How should you allocate investments in the new Samvat?

Investors should also consider their financial goals and investment horizons before deciding how much equity exposure to maintain.

For those investing over 10-15 years, temporary underperformance in a market segment may not necessarily require a change in strategy, provided the fund continues to meet its performance parameters.

However, investors who need money within the next two to three years should be more cautious about exposure to volatile small-cap and mid-cap funds. Agarwal suggested gradually moving such investments towards debt or conservative hybrid funds through a systematic transfer, depending on individual requirements.

Naresh Biyani, Founder and CEO of Capwise Financial Services, an integrated financial services platform, identified banks with strong deposit franchises, urban consumption, capital markets, manufacturing and defence as areas to watch. He also advised investors to maintain SIP discipline, add quality companies during market corrections and consider short-duration debt investments in the higher-interest-rate environment.

Sandeep Daga, Founder and CIO of Nine Rivers Capital, an independent, SEBI-registered asset management and corporate advisory firm, emphasised the importance of balance-sheet strength, saying investors should focus on companies capable of financing their own growth in the prevailing interest-rate environment.

The broader message for investors entering Samvat 2083 is to review portfolios without reacting to short-term market movements. Fund selection, asset allocation, investment horizon and the ability to stay invested through volatility remain important considerations.