Why Continuing SIPs in Small-Cap Funds Makes Sense

Small-cap mutual funds have always been seen as a high-risk, high-reward investment avenue. Their volatility often tempts investors to stop SIPs during downturns. However, history shows that continuing SIPs through market ups and downs has delivered superior long-term returns.

The primary benefit of continuing SIPs is rupee-cost averaging. By investing a fixed amount regularly, you buy more units when prices fall and fewer when prices rise. This naturally smooths out your average purchase price. Combined with the power of compounding, even volatile assets like small caps can generate significant wealth if held over the long term.

Performance data strongly supports this approach. Over the past ten years, small-cap funds have comfortably beaten their benchmark, the Nifty Smallcap 250 TRI, which delivered around 19.1 percent XIRR.

Fund XIRR (%)

Nippon India Small Cap Fund ~24.6%
Axis Small Cap Fund ~22.3%
HDFC Small Cap Fund ~21.5%

Quant Small Cap (₹5k SIP) ~22.5%

A ₹5,000 monthly SIP in Quant Small Cap Fund over ten years grew to approximately ₹18.6 lakh. The same investment in Nippon India Small Cap reached about ₹17.4 lakh, both significantly outperforming the benchmark. Even over shorter periods, the category has excelled. In the last five years, Bandhan Small-Cap Equity Fund delivered an impressive 36.4 percent CAGR, outpacing the index.

Investors with a high-risk appetite and a long investment horizon can benefit from continuing SIPs in small-cap schemes. While short-term volatility is inevitable, these funds tap into India’s rapidly growing small-business segment, offering the potential for substantial gains.

The lesson is clear: discipline and consistency, not market timing, are the keys to long-term success in small-cap investing.