The year 2023 was rather forgettable for the small-cap funds on our recommended list. But should their underperformance worry you? Read this story to find out. Below is a brief on the performance of our recommended small-cap funds. DSP Small Cap Fund This fund had a tale of two halves in 2023. This 'true-to-label' small-cap fund made a comeback in the first half of 2023 (post an average 2022), ranking among the top five in its category. However, the rally in the second half of 2023 reversed its outperformance. As a result, the fund's rating slumped from three to two stars. Notably, the sectors that helped the fund top the performance charts in the first half of 2023 contributed to its underperformance in the latter part of the year. Materials, chemicals and automobiles sectors were the worst performers during the period. Yet, the former two sectors continue to remain in the top three by allocation. This is because the AMC believes that patience is a virtue and long holding periods are often required to nurture mid- and small-cap businesses. That's why we often see the fund buying more of its conviction holdings when it catches troubles on the bourses. Interestingly, the fund invests significantly in microcaps, as highlighted by its lowest portfolio market capitalisation. Therefore, while the fund holds rising stars of tomorrow, it is expected to deliver short bouts of underperformance. But if you look at longer-term returns, this f
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