Stories
How to Choose Small-Cap Mutual Funds and Avoid Past Return Traps
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CNBC TV18•18-10-2026, 14:17
How to Choose Small-Cap Mutual Funds and Avoid Past Return Traps
- •Small-cap fund rankings fluctuate drastically year over year, making past returns an unreliable standalone metric for investors.
- •Experts advise evaluating a fund manager's specific small-cap experience, portfolio concentration, liquidity risks, and asset under management.
- •Performance should be measured against both the benchmark and category average across one, three, and five-year periods using rolling returns.
- •Investors must align their choice of aggressive or conservative small-cap schemes with their personal risk tolerance rather than relying solely on rankings.
- •Persistent underperformance across multiple timeframes warrants a closer look, and investors may consider pausing SIPs in lagging funds.
Key Questions Answered
Small-cap fund rankings can fluctuate sharply from one year to the next as market conditions shift. For instance, funds that rank among top performers can slide to the bottom quartile, and vice-versa, making past returns misleading on their own.
Investors should examine the fund manager's experience with small caps, assets under management (AUM), portfolio concentration, liquidity risks, and how the fund performs across different market conditions.
Performance should be assessed across one-year, three-year, and five-year returns against both its benchmark and the category average. If a scheme consistently lags across all three periods and fails to manage downside risk, it may be time to exit.
