With small-cap funds, it's either Sholay or chhole

Small-cap funds are all the rage. They have received money of epic proportions from investors (north of Rs 24,000 crore between June '22 and May '23), delivered punchy double-digit returns (over 20 per cent over ten years) and are climbing new highs as we type. Yet, small-cap funds should come with a health warning: they aren't for the faint-hearted. For all the eyeball-grabbing long-term performance and the fact they are in the 'peak excitement' phase, these funds find themselves in slopes of disappointment for long stretches. In fact, you'll see three to four-year periods when small-cap funds deliver zero to negative returns (see 'Bubble burst' table). Meaning, if you look beneath their bubbly surface, you'd realise that investing in this universe is a test of patience. Bubble burst Small-caps have taken as much as three years to scale new heights Scheme name 10-year returns (%) Longest period of zero returns Second-longest period of zero returns Aditya Birla Sun Life Small Cap 17.3 3 yrs 4 months 1 yr 8 months DSP Small Cap 24.1 3 yrs 1 yr 4 months Franklin India Smaller Companies 21.3 3 yrs 1 month