SIP Investments in Small Cap Mutual Funds Return Negative Over the Past One Year

Small-cap mutual funds have given most SIP investments negative returns over the past year. 27 small-cap schemes completed one year of existence in the market and out of them, 26 delivered negative returns. There was only one scheme that delivered a positive return.

Three small-cap mutual funds saw a fall of over 20% in SIP investments over this timeframe. The Quant Small Cap Fund had a negative XIRR of about 22.45%, cutting down a monthly SIP of Rs.1,000 to Rs.10,631. The Mahindra Manulife Small Cap Fund was close behind at a loss of 21.84%, lowering an equivalent SIP investment to Rs.10,670. While that, the Aditya Birla Sun Life Small Cap Fund lost 20.90% on SIP investments. Other schemes also posted substantial losses. The Franklin India Smaller Companies Fund returned a negative XIRR of 18.25% for the year, while the Nippon India Small Cap Fund, the biggest small cap fund in terms of assets under management, had a negative return of 17.93%.

Canara Robeco Small Cap Fund and SBI Small Cap Fund also experienced drops, with 17.06% and 16.38% losses, respectively.

SBI Small Cap Fund, one of the renowned small-cap funds, still reflected a negative XIRR of 16.38% during the period. Tata Small Cap Fund and HDFC Small Cap Fund experienced drops of 15.03% and around 15%, respectively. The Kotak Small Cap Fund next had a return of 13.90% and the DSP Small Cap Fund declined by 12.74%. Out of the 26 loss-generating funds, five incurred single-digit losses on SIP investments. Axis Small Cap Fund and Quantum Small Cap Fund have incurred a decline of 8.49% and 8.45%, respectively. Invesco India Small Cap Fund and UTI Small Cap Fund have posted a negative return of 7.92% and 6.30%, whereas Bandhan Small Cap Fund incurred the least loss of 6.19%. Motilal Oswal Small Cap Fund was the sole fund to provide positive returns in the past year, returning a modest XIRR of 1.05% on SIP investments.

The experts point out that SIPs are most ideal for long-term investors and not suitable for investors expecting short-term benefits. Instead of making spur-of-the-moment withdrawal calls or responding to changes in the market, they advocate a strict investment strategy with infrequent modification for volatility.

It is also observed that most investors prefer to follow previous performance without a risk assessment. Although small-cap funds have shown good performance over the last couple of years, expectations of too-good-to-be-true returns in the short term can turn out to be disappointing. For stability seekers, a balanced investment with large-cap and diversified funds is recommended.

Trying to time the market with SIPs also has its own risks as investors stand to lose out on gains when the market recovers. Investors who are convinced of the long-term growth opportunities of the Indian economy, corporate world, and equity markets should go on with SIP investments. Well-skilled fund managers can tide over market movements to meet long-term financial objectives.

The research covered all small-cap mutual funds that existed during the given duration, and regular and growth variants were studied. SIP returns were determined for investments between February 12, 2024, and February 11, 2025.

Please keep in mind that this analysis is not an investment recommendation. Investment decisions should be made after a review of the risk tolerance, investment horizon, and financial goals of the investors before making any investments or redemptions.