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Are small-cap funds a good choice for the long term?

Dhirendra Kumar advises being prepared to face market volatility while investing in small-cap funds

I have invested in a few mid- and large-cap funds and want to invest in small-caps through SIPs with a time horizon of 12-13 years. Is this approach fine? And if it is, can you suggest a few good small-cap funds?
- Sanjay

You can look at the list of Value Research's top-rated small-cap funds and choose from them.

Coming to your strategy, you must invest in small-cap funds for such a long time period. However, I will advise you to first make sure that you are ready for all ups and downs and have the required temperament. I would like to tell you that during the financial crisis of 2008, while large- and mid-cap funds fell by more than 40 per cent and 60 per cent, respectively, small-cap funds fell by about 70 per cent. Further, a small-cap fund witnessed a massive decline of almost 85 per cent, which effectively brought an investment of Rs 100 to Rs 15.

So, just be sure that you are ready to handle situations like these as it is important to continue investing even during such situations. Sticking to your investments during these times requires strength but it can become a reason for your success as well. However, I don't feel a situation like 2008 will come again but it is better to stay prepared.