Base effect contributing to small-cap funds' 30% return over three years

Limit exposure to this volatile category to 10-15% of equity portfolio, enter with 7-10-year horizon

Small-cap funds have given a category average return of 30 per cent over the past three years, which makes them among the best performing categories over this horizon. Over the past year, however, this category’s  return has been muted at 3 per cent.

Base effect

A couple of factors have contributed to the category’s strong performance over the three-year period.  

“Sectors like chemicals, engineering, garments, etc have done well over this period and they belong mostly to the small-cap segment,” says Samir Rachh, fund manager-equity, Nippon India Mutual Fund, who manages the largest fund in this category (the Rs 22,844