Equity mutual funds: How to invest amid market volatility

With systematic investment plan (SIP) contributions reaching a record ₹32,490 crore in September 2026, investors continue to direct money into equity mutual funds.

However, investment experts caution that strong inflows should not be mistaken for a signal to invest indiscriminately, particularly as valuations and risks vary across fund categories.

Their advice centres on three considerations: deciding the right asset allocation before selecting a fund, maintaining investment discipline through market volatility and evaluating schemes on their investment process rather than recent returns.

Asset allocation comes first

Bhautik Ambani, Chief Executive Officer of AlphaGrep Mutual Fund, said asset allocation has a greater bearing on investment outcomes than identifying the best-performing fund. Investors should assess their ability to withstand losses before deciding how much to allocate to equity, particularly if they have not experienced a prolonged market downturn.

Rhishabh Garg, CEO of FundsIndia.com, said investors should establish whether their goals are at least five to seven years away and choose an equity allocation they can sustain through market declines. Large-cap and flexi-cap funds could form part of a diversified core portfolio, with measured mid-cap and small-cap exposure depending on risk tolerance.

Alekh Yadav, Head of Investment Products at Sanctum Wealth, said the relative outperformance of mid- and small-cap stocks had contributed to inflows into these categories and outflows from large-cap funds. He said the valuation gap between large caps and mid- and small caps had narrowed, favouring a higher allocation to large caps in his assessment.

Nitin Agrawal, CEO of Mutual at InCred Money, also cautioned that valuations in some mid-cap, small-cap and thematic segments remained elevated on a trailing earnings basis. He said investors should focus on diversification and realistic return expectations rather than chase recent winners.

Vijay Ramavat, Managing Director of Indira Securities, said multi-asset funds attracted about ₹38,000 crore between January and June 2026, more than balanced advantage funds over the period. He cautioned against choosing a category solely because of recent returns, including gains supported by gold and silver.

Investors considering hybrid or multi-asset funds should also examine their underlying allocation strategy. Ambani noted that some multi-asset funds maintain relatively stable equity exposure, while others adjust allocations as market conditions change.

Should investors continue SIPs during volatility?

Experts generally recommend maintaining existing SIPs if investors’ financial circumstances and goals remain unchanged.

A SIP invests a fixed amount at regular intervals, allowing investors to buy more units when prices fall and fewer when they rise. This rupee-cost averaging can spread purchases across market levels, but it does not eliminate the risk of losses.

Shiva Grover, Founder of Equitrust, said investors should maintain SIPs and increase contributions only when their income permits and their overall portfolio remains balanced. He also stressed the importance of retaining an emergency buffer.

Ambani said investors should remember that a SIP is an investment method, not a substitute for choosing the right assets. Regular contributions should therefore be accompanied by periodic reviews of the underlying allocation.

For additional lump-sum investments, views differ.

Agrawal suggested deploying the amount over three to six months in the current environment, while Ambani said staggering was not necessary solely because of market volatility if the money was intended for equity and the investor had a suitable risk profile and sufficiently long horizon.

What should investors check before selecting or switching funds?

For investors with a three-to-five-year horizon, experts emphasise the importance of matching the investment to the date and purpose of the financial goal. A market decline shortly before withdrawal could affect the amount available, making the balance between equity and debt particularly important.

Garg said investors should plan their asset allocation and consider reducing risk as the goal approaches. Yadav recommended examining the fund manager’s track record, the strength of the investment team and the scheme’s fit with the overall portfolio.

Ambani and Agrawal advised looking beyond headline returns to the consistency of the investment process across market cycles.

Ramavat recommended assessing rolling returns, volatility, drawdowns and downside capture alongside benchmark and peer comparisons.

A single period of underperformance may not justify exiting a fund. Ramavat said persistent underperformance against its benchmark and peers warrants a review, while Agrawal emphasised checking whether the fund’s investment process remains disciplined and repeatable.

For investors, the key is to choose funds according to their goals, risk tolerance and investment horizon rather than recent performance rankings. Continuing a SIP can support investing discipline, but it cannot compensate for an unsuitable asset allocation or remove market risk.