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Minocha further said that since market bottoms are difficult to predict, investors should continue their SIPs because market declines allow SIPs to acquire more units at lower prices, improving future returns and those with additional funds should consider making staggered lumpsum investments over the next three months.
Vaiibhavv Chugh, CEO, Abakkus Mutual Fund told ETMutualFunds that an 8–10% correction in indices like the BSE Sensex and Nifty 50 is not unusual and the best viewed in context rather than in isolation as Indian markets have historically gone through frequent double-digit drawdowns, yet the long-term trajectory has remained firmly upward.
Chugh further said that when it comes to SIPs, the evidence is clear, they are most effective during falling markets and corrections enable investors to accumulate more units at lower prices, thereby strengthening long-term compounding.
He further said that pausing SIPs during volatile phases often results in missing the most attractive accumulation periods, ultimately diluting long-term outcomes. In essence, while corrections may feel uncomfortable, they are often when future returns are being created. The focus should not be on predicting the extent of near-term downside, but on staying disciplined, continuing SIPs, and allowing compounding to work through market cycles.
Historical trend
On December 31 the benchmark index was at the level of 85,220, and went down 9% in the current calendar year to close at 77,958. In the last three months, Sensex has dropped 7.55% and 7.71% in the last six months. In the last one year, the benchmark index has gone down 4.67%.The other benchmark index – Nifty has also gone down 8.02% in 2026 so far. In the last three months, Nifty50 has dropped 6.27% and 6.11% in the last six months. In the last one year, the benchmark index has gone down 1.75%.
Book profit in outperforming funds or continue holding?
Chugh said that portfolio decisions must remain anchored to your original asset allocation, which is built around your investment goals, time horizon, and risk appetite, not short-term market movements. Rebalancing, therefore, should always be risk-driven rather than return-chasing.
He further said that one of the most common behavioural mistakes is booking profits in top-performing funds simply because they have delivered strong returns and in many ways, this is like penalising performance, such an approach often results in exiting performing funds too early, thereby missing out on their ability to compound across market cycles and well-managed funds typically go through phases of outperformance and consolidation, and they need time to play out their full potential.
From a practical standpoint, if equity exposure has fallen below the intended allocation due to the correction, it is prudent to gradually increase exposure to bring the portfolio back in line, rather than cutting risk and at the same time, if certain funds or sectors have become disproportionately large, say, crossing 20% of the portfolio a partial trimming may be appropriate to manage concentration risk, without completely exiting those positions, Chugh also said.
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Minocha said that this is a good time to review your asset allocation, especially as market volatility can cause emotional stress and consider partially rebalancing thematic and small-cap holdings if they have risen above target levels following recent gains.
He further said that avoid excessive profit-taking during downturns, stay focused on quality diversified funds and a long-term investment approach and ensure your portfolio remains aligned with your financial goals and risk profile, rather than reacting to short-term market movements.
Which sectors or fund categories are better positioned in the current market phase?
Many mutual funds use gold and silver funds for portfolio diversification. They also consider multi-asset allocation funds as they invest across equities, debt and commodities such as gold and silver, offering built-in diversification within a single scheme. For many investors, this structure reduces the need to actively rebalance portfolios during uncertain market phases.
Investors also prefer flexi cap funds and multi cap funds due to their nature of investing across market caps or prefer large cap funds to sail through the market volatility.
While recommending where investors should focus now, Minocha said that investors may consider flexi-cap or large-and-mid-cap funds, as both offer stability and growth potential and sectors such as domestic consumption, financials, manufacturing, healthcare, and select technology areas present ongoing growth opportunities. “Avoid aggressively pursuing narrow themes after sharp rallies. A diversified strategy and gradual investment approach are more effective during periods of market uncertainty.”
To this, Chugh said that in the current market phase, leadership is increasingly tilting toward domestic, earnings-led sectors, so financials especially capital market plays and NBFCs stand out on the back of sustained financialization, improving credit demand, and strong participation from retail investors and additionally manufacturing and industrials continue to benefit from policy support, government capex, and the broader shift toward import substitution, making them structural growth stories plus within consumption, the trend is clearly divergent, with premiumisation themes holding up better than mass demand.
He further said that defensive sectors like healthcare offer stability, while a balanced mix across financials, manufacturing, and consumption can help navigate current markets, with returns driven more by stock selection. Flexi-cap funds remain well placed due to their flexibility, and recent corrections have made small-caps more attractive for long-term investors, though they come with higher volatility.
Are you a new investor looking where to invest?
There are many first-time investors who are willing to allocate in the categories which offer high returns, have low or high risk, and offer tax benefits. There are many new investors who are wondering where to invest amid the market volatility, geopolitical tensions and other factors.
Chugh said that when markets are correcting, new investors should approach with discipline, structure, and a long-term mindset, rather than trying to time the bottom, a falling market often provides a more favourable entry point, but the approach should be phased, not aggressive.
He also said that a good starting strategy is to begin with SIPs, which help average costs and reduce timing risk. For investors with surplus cash, STPs can be an effective way to gradually deploy funds from liquid or low-risk instruments into equities. Additionally, selective lump sum allocation can be considered during meaningful market declines, but it is best done in a staggered manner rather than all at once.
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In the end, Chugh further said that investors should also evaluate the market mix within their portfolio across sectors, market caps, and fund categories before deciding where to allocate fresh investments, the focus should not be on predicting short-term market movements, but on building a well-diversified, goal-oriented portfolio. In essence, consistency through SIPs, disciplined deployment via STPs, selective lump sum investing during corrections, and strict adherence to asset allocation are key to navigating falling markets effectively.
Minocha said market corrections offer new investors better entry opportunities than periods of high excitement. Begin gradually with SIPs and set realistic return expectations, prioritise core diversified equity funds, maintain an emergency fund, and ensure proper asset allocation, focus on building sound investment habits rather than predicting short-term trends and the long-term wealth in equities is achieved by staying invested, not by timing the market.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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