When to Invest in Large Cap, Mid Cap, Debt, Gold, REITs & International Funds (19 Years of Data)

Most people would do SIPs in 7 different mutual fund categories and treat all 7 the same way.

They would invest the same amount in every category, no matter what’s happening in the market.

That’s where we often go wrong with our mutual fund investment, I think.

Here’s the rule I actually follow

Every fund category takes a turn being the weak one.

Large Cap, Mid Cap, Small Cap, Debt, Gold, REITs, International Equity, etc. It doesn’t matter which one.

At some point in the cycle, each of them will go quiet in performance while the others run a normal race.

My rule is simple.

Whichever category is quietly underperforming, that’s where my SIP money would go. Maybe I keep investing in other categories as well, but a chunk of my contribution would be targeted at the underperforming category.

Why? Because that weak phase is the only time you get to buy units cheap.

Once a category starts running, everyone piles in, and the price you pay for each unit goes up.

But I believe that the smart entry was always during the boring, ignored phase — not the exciting one.

Let me show you exactly how this plays out. Real years. Real numbers.

1. Bull run? Gold and Debt go quiet.

This is the year 2013. Gold crashed nearly 28% that year.

Right after, 2014 to 2017 saw one of the biggest equity bull runs in Indian market history.

Nobody wanted Gold in 2013. That was exactly the year to buy and accumulate units of gold funds.

2. Mid and Small Cap booming? Large Cap goes quiet.

Years 2014 to 2017.

In this period, Mid Cap funds surged over 60% in 2014 alone. Large Cap gained around 35% too.

Compared to Mid Caps, Large cap’s performance was kind of subdued. It looked boring next to Mid Cap, right?

But in 2018, when Mid Cap fell over -12%, Large Cap’s movement was almost flat.

During the 2018 phase, that “boring” choice of Large Caps turned out to be the safer one.

3. Market crashes? Small and Mid Cap fall hardest — and bounce back hardest.

Year 2020 (March).

Nifty fell nearly 38% in five weeks due to the COVID outbreak news.

Small Cap fell even more.

But five months later, the same Small-Cap funds rallied over 70% from the bottom.

If you had stopped your SIP in Small-cap funds in March 2020, you would have missed the best entry point of the decade.

4. Rates rising? Debt and REITs go quiet.

This is about the year 2022.

RBI hiked rates from 4% to 6.5% within a year due to post-COVID inflation concerns.

When interest rates rise, debt fund returns turn dull.

A similar effect was also seen in REITs. The price of the listed REITs fell by over 15%.

That was exactly the window to add more debt fund units and REIT shares. This way, you were buying future yield at a discount.

5. India strong, Rupee strong? International Equity goes quiet.

Year 2017 was the cleanest example of this.

Nifty gave 28.6% that year.

The Rupee also appreciated nearly 6% against the Dollar. It was the first gain of INR against USD in seven years. It was caused by the huge inflow of FII and FDI funds in India.

During that time, the US market was also doing well. It gained close to 22% in dollar terms.

But as the INR was getting stronger, once you convert that back to Rupees, the USD returns shrunk to almost half — around 14-15%.

A strong India plus a strong Rupee is a double hit on International Fund returns. That’s exactly when you should’ve been adding more to such mutual fund schemes.

Conclusion

We must not judge any fund category by its worst 1-year return chart.

We must ask the following question instead:

Is this weak because of a cycle, or because something is actually broken?

If it’s just the cycle, that weakness is your invitation to invest more in an underperforming category. The fall should be taken as a warning sign.

We must shift our SIP focus to whichever category is cyclically down. This way, we’ll end up buying more units at a lower price, without ever trying to time the market.

If we can do this consistently across all 7 categories over 10 years, our long-term return will really surge. Why? Because this way we’ll be buying quietly while everyone else is reacting loudly. We will be buying quality equity at cheaper price levels.

This is the way to play the whole equity game of buying when they are trading at cheaper price levels.

Have a happy investment.