Outlook Asia Capital on Thursday said mutual fund investors should not stop systematic investment plans (SIP) when market is down.

In an interview to CNBC-TV18, Manoj Nagpal, managing director and chief executive officer, said that in the last three months, around 6 to 7 lakh new SIPs have been added and at the same time, almost a similar amount has got stopped also.

Nagpal said, "If you are really thinking of making good returns, it has to average over a period of time. Don’t try to time the market, which most of the people do."

Edited excerpts:

Q: The first thing that people wanted to know is, is this the time to actually stop their SIPs? Is this the time to redeem their investments or this is the time that they should keep the faith?

A: We are really seeing some investors stopping their SIPs at this point of time. What the trend has been in the last three months is that around 6 to 7 lakh new SIPs have been getting added, but in the last month, almost a similar amount has got stopped also. Now, that is a matter of big concern. SIP is a tool, which brings in discipline for the long term, held you average your cost. So, if you are not going to do your SIP right now, that is really going to cost you too much in the long term.

So, don’t stop your SIP is the first thing and if you are thinking of selling or buying stocks or mutual funds, it should only be based on fundamentals and not how the market is behaving on a short term basis.

Q: There are lot of people who have been calling and a lot of people writing to you as well, saying that they are seeing negative portfolio returns. How do they reconcile themselves to this fact and also what do they do about it?

A: Market by nature is cyclical based. If you really see the last five year returns, and this is one data point every investor should know carefully is that, though the returns have been very good, the returns primarily came in two years that is 2014 and 2017. If you have not invested in those two years, you have not made returns in the market commensurate with the risk you have taken.

You need to understand that a bulk of the returns in the equity market will always be chunky and this cyclic ups and down will always be there. So, if you are really thinking of making good returns, it has to average over a period of time. Don’t try to time the market, which most of the people do.

Q: In that case, if somebody stays on, or has to remain invested, where should they be putting their money? Suppose, if somebody was to put fresh money to use, is it the largecap funds, midcap, multicap, smallcap, what is the place to be in?

A: There are so many categories out there and if you remember, right from the beginning of the year, we had been cautioning investors that do not do midcaps and smallcaps, because smallcaps were trading at a P/E of 60 in the beginning of the year. That was too high. From beginning of the year to now, if you see, smallcaps have corrected almost 35-40 percent and midcaps have corrected almost 20-25 percent. That is a full blown bear market in this segment that is there.

As we said, it can continue a little bit more also. So, you can start nibbling into them. The good quality largecaps have been on the other hand going up. So, that has also a little more value. So, we believe that with this current correction that has happened in September, that month was a very brutal month. And obviously, now carrying on to October, that month also seems to be getting worse. We feel that valuations have come back to levels, where we find it at a level, which are fairly priced. So, you should start investing at this point of time and the next three months will give you very good opportunity to invest if you are a long term investor.

Q: Debt is now almost 60 percent of assets under management (AUM). We have seen negative returns coming in liquid funds as well. What do investors in debt funds do and what is the portfolio strategy now?

A: As we have been saying, on debt, at this point of time, the only good instrument to look at is the fixed maturity plan. You should invest in fixed maturity plans, if you can lock in money for three years, and you will get good return.

On the other hand, funds like liquid funds, there are only three liquid funds, which have seen a slight negative return and liquid funds have no business to take risk with the money. However, the bulk of the liquid funds are consistent and you should not get too worried about there.

On the other categories, credit risk funds and long term duration funds. We still feel it's time to avoid those and not really a time to get into them.