Hold tight, stay the course

Mid- and small-cap stocks, known for their high growth potential, also come with dramatic ups and downs. After a roaring run in 2023 and 2024, this year has delivered a reality check. Since the peak in September 2024, the Sensex has slipped 15 per cent, while mid- and small-cap indices have tumbled 21 and 25 per cent (as of February 2025), respectively. Mid- and small-cap funds are at best meant for a supplementary allocation (around 25-30 per cent) in your portfolio precisely for their high-risk avatar. However, history suggests that staying invested through downturns can be highly rewarding. So, keep your SIPs (systematic investment plans) running and stick to your asset allocation. Key trends Performance: After two blockbuster years, mid- and small-cap funds have hit turbulence in 2025. Small caps, which lead rallies, also fall the hardest, a cycle playing out yet again. This boom-and-bust pattern is part and parcel of investing in these segments. Fund managers still hold an edge: Passive investing continues to gain traction. Half of mid-cap funds and 35 per cent of small-cap funds now follow passive strategies. However, active

This article was originally published on March 17, 2025.