A wild ride worth staying on

Summary: Mid- and small-cap funds are not for the faint-hearted, but for patient investors. They remain potent growth engines. This story captures how these funds have cycled through boom, bust and rebound over the last three years, why investors are now holding their nerve and how active managers still have an edge in this volatile but rewarding corner of the market. Mid- and small-cap funds invest in companies beyond the large-cap universe. They offer higher growth potential but also come with far greater volatility. Providing stability is not their job; that’s what large caps are for. Instead, these funds play a supplementary role as return boosters in the core equity portfolios of investors with a high risk appetite. The suitability test is simple: only those who can stomach sharp swings and stay invested for seven years or more should consider them. Over the past two to three years, mid- and small-cap funds have gone through the full market cycle: spectacular rallies, a bruising fall and a sharp rebound. Key trends Performance: Mid- and small-cap funds were flying high in 2023, delivering over 40 per cent gains and continued to rise until September 2024. Then came the correction. Small caps fell about one-and-a-half times as much as the Sensex.

This article was originally published on September 20, 2025.