According to a study by asset valuation analytics firm Valuemetrics Technologies on monthly rolling returns for SIPs between April 2005 and March 2025 in the Nifty Small Cap 250 Total Returns Index, such investments made for three to ten years have incurred losses (see table). For instance, the highest return made in a three-year SIP in the Nifty Small Cap 250 TRI in these 20 years is 42.1% on an annualised basis. At the same time, the value has eroded by as much as 64.70% in the worst-case scenario for three-year SIPs in this period, the study showed.
Similarly, investors lost 0.4% on an annualised basis in a 10-year SIP, but if the SIP continued for 12 years, the minimum return increased to 2.4%.
“Investors randomly start SIPs in small cap funds, but it is important that they should know that they need to come with longer time horizons if they need to protect capital in this category,” said Chirag Patel, Co-Founder, Valuemetrics Technologies. “As investors extend their investment horizon, the impact of short-term volatility diminishes, increasing the probability of earning higher returns.”
In a declining market, selling in smaller shares tends to be the sharpest as they also offer the highest returns in an advancing market. Since September 24, when the Nifty Small cap 250 hit a peak, the index is down 18.4%. The value of SIP investments in the Nifty Small Cap 250 in this period is down 13.7%. In the case of the Nifty Midcap 150 index, the SIP value is down 7.5%. The value of such staggered investments in the Nifty 50 is down 1% in the same period. The drop in these shares resulted in retail flows into mid-cap and small-cap funds fall by 34% in February from the previous month.
Investors, who continued doing SIPs in Nifty Small Cap 250 TRI for 12 years and 15 years, did not lose money at all, according to the study.”A well managed small cap fund can generate higher returns than its large cap counterparts,” said S Shankar, CFP, Credo Capital. “However due to high interim volatility in this space investors must have long time frames typically of 8-10 years.”
