Small-Cap Funds Draw Strong Inflows Despite Frequent Deep Volatility

Many Indian investors are putting money into small-cap funds.

These funds invest in smaller companies, whose prices can move up and down sharply.

The Nifty Smallcap 100 has fallen more often and more deeply than the Sensex in historical data.

A fall of 30% has happened much more often in small caps than in large-company stocks.

However, a big drop during a year does not always mean the year ends badly.

For example, small caps fell 38% in 2020 but finished the year up 16%.

In 2022, they fell 16% at one point but ended up 4%.

FundsIndia found that three out of four years ended with positive returns despite frequent temporary declines.

Investors therefore need to be prepared for volatility rather than assuming every sharp fall is unusual.