MF: Rebalancing from sector-heavy exposure to diversified portfolio needed, says MIRA Money expert

Kolkata: The growth of SIP (Systematic Investment Plan) is one of the remarkable stories of participation by the middle class and lower middle class in the country's mutual fund industry. The SIP inflow has been reaching a new high almost every month for the past several months, signaling a confidence of the common investor in India's economy. For example, while the SIP inflow in June 2020 stood at Rs 7,927 crore, it has risen to Rs 26,688 crore, or 3367% in June 2025 -- a gap of five years.

However, Mohit Bagdi, head of investment research & founding member of MIRA Money, tells TV9 that beyond the mind boggling figures, a scenario is emerging which needs a tweak in the investor approach. "The SIPs milestone of ₹26,000 crore shows that investors are becoming more confident in India's development story. Now however allocation-rather than participation is the problem. Long-term wealth growth can be derailed if popular or hot-button issues are pursued without considering the underlying risks. Investors need to switch from trend-driven, reactive behavior to a diversified, disciplined SIP strategy," said Mohit Bagdi.

Are investors misallocating capital -- this is a significant question at these times, he pointed out. Bagdi thinks despite the reassuring rise in SIPs, capital flows indicate a concentration in high-risk, momentum-driven areas, which raises concerns. "There is evidence of return-chasing behavior in which investors allocate disproportionately to sectors/funds that have recently outperformed rather than pursuing a balanced approach," he remarked.

To bolster his argument, Bagdi pointed out the following pertiaining to the May 2024-May 2025 period:

32% rise in number of new sectoral/thematic fund launches (the highest across all equity categories.) This has resulted in 50% increase in folio count in these funds. However, largecap folios grew only 15% and flexicap folios by 25%. Midcap folios grew 45% and smallcaps continue to attract high inflows. The upshot: the number of folios in sectoral/thematic funds crossed 3 crore, which is higher than the folios in Largecap, Focused and Value funds combined.

Bagdi also pointed to the overheating in categories such as PSUs, Defense, Infrastructure, Manufacturing, Momentum and Quant strategies fueled by recent outperformance. He also said that these are the sectors that suffered the biggest declines in calendar year 2025.

Bagdi pointed out the panic redemptions too as a response to the correction -- from April 2021 to October 2024, SIPs grew at an average of 2.5% month-on-month. However the rate of SIP growth dipped to onloy 0.4% (MoM) between November 2024 and May 2025. On direct investing platforms, the SIP stoppage ratio (calculated as Stopped SIPs/new SIPs) jumped to 102% in 2025 from 68% in 2023 and 63% in 2024.

Mohit Bagdi has a four-pronged approach in mind. "Investors must rebalance from sector-heavy exposure to diversified, core portfolios," he said and added that they should avoid basing judgments on recent performance or market narratives. His also emphasised that an investor should continue SIPs with discipline during all market periods so that the compounding force ca be harnessed fully. Bagdi also emphasized that investors should know about "risk-adjusted returns, not just absolute profits".