Small-cap funds gave 5x returns in 10 yrs. A new normal?

Summary: Everyone’s chasing small-cap funds after their 5x run in the last decade. But our deep dive shows that sky-high returns are far from the norm. Instead of just looking at averages, we broke past returns into splits, showing how often they actually fell into buckets like 0–5 per cent, 10–15 per cent or above 20 per cent. The result? A reality check that may surprise you and change the way you think about small-cap investing. If you had invested Rs 10 lakh in an average small-cap fund 10 years ago, today you’d be sitting on nearly Rs 50 lakh. That’s a fivefold leap. Even a middle-of-the-pack small-cap fund has delivered around 17.3 per cent annualised over the last decade, as of September 4, 2025. It’s no surprise then that small caps are the new darling of retail investors. I recently watched a prominent influencer advising a 28-year-old on financial planning. Out came the SIP calculator, in went the magic number—18 per cent annualised—and in seconds, a Rs 3,500 SIP ballooned into multiple crores over 30 years. The investor’s eyes widened in disbelief. Sure, the influencer wasn’t “wrong”. Past data support the possibility of 18 per cent returns. The question is: how often does that really happen? And more importantly, should you expect it in the future? Why point-to-point returns can fool us Most people quote mutual fund performance with a simple formula: “X fund delivered Y per cent in Z years”. This is called point-to-point returns. It’s simpl