MID-& SMALL-CAP FUNDS: WEALTH ENGINE OR RISK?

In recent years, midand small-cap funds have taken centre stage in investor conversations.

- KUSHAL BHAGI

Their returns have been eye-catching, and many portfolios now carry a meaningful allocation to these categories. But with the excitement comes an equally important question: how much is too much?

Over tthe past few years, the performance of mid-and small-cap indices has been striking. On a five-year basis, midand small-caps have compounded at 31% and 34% respectively, far outpacing the Nifty50’s 20% return (as of 25 June), Stretch the horizon to 10 years, and while the Nifty delivered 12%, midand small-caps compounded at 18% and 15%.

Thesenumbersshow why investorsare drawn to these categories: in bull markets, they often produce the most thrilling stories of wealth creation.

It’s no surprise, then, that most investors feel compelled to include at least some exposure to midand small-caps in their portfolios. These segments provide access to fast-growing firms, often in sunrise sectors, with the potential to compound wealth at an extraordinary pace when conditions are favourable.