Small caps gave huge returns last year. Should I move my entire SIP portfolio into small-cap funds?

Question

I started investing two years ago and currently have a mix of large and mid-cap funds.

I noticed small-cap funds delivered massive returns last year and I am tempted to stop my current SIPs to go all-in on small caps.

Is it safe to chase these high one-year returns or am I missing a bigger risk?

Sachin Kabra · Accepted Answer

Looking at recent 1year performance to decide where to invest is one of the most common mistakes you can make. Every single year the best performing index changes completely.

If you look at historical data from 2010 mid-caps gave the best return at 20%. But just one year later in 2011 all indices performed poorly and small-caps actually lost 35%. Then in 2013 all indices gave negative returns except large-caps which returned around 8%.

Instead of looking at 1year calendar returns you should always look at rolling returns. Rolling returns measure performance on a continuous basis over specific timeframes like 5 or 10 years. This gives you a realistic range of best-case and worst-case scenarios.

Over a 5year period the Nifty 50 might show a worst-case return of -15% and a best-case of 108%. However as your investment horizon stretches past seven years the historical minimum return turns positive to around 5% to 9%. Understanding this range prevents you from panicking and stopping your SIPs during temporary market corrections.

Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.

Small caps gave huge returns last year. Should I move my entire SIP portfolio into small-cap funds?

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