Small caps have delivered 18-22% CAGR over 10 years — but with 50-70% drawdowns. Here's how to invest smartly.
Why Small Caps?
Highest return potential in equity. Companies ranked 251+ by market cap. Today's small cap could be tomorrow's blue chip. Historical 10-year CAGR: 18-22%. See our [Small Cap vs Large Cap comparison](/compare/small-cap-vs-large-cap).
The Risk Reality
2018 correction: Small cap index fell 40%. 2020 COVID crash: 55% fall. Recovery time: 2-4 years. Many individual small caps never recover. This is why SIP + diversified funds are essential.
Allocation Strategy
Aggressive (under 35): 15-20% of equity in small caps. Moderate (35-50): 10-15%. Conservative (50+): 0-5%. Never put money you need within 10 years.
SIP vs Lump Sum in Small Caps
Always SIP in small caps. Lump sum at a market peak can result in 3-5 years of negative returns. SIP averages out the extreme volatility. Use our [SIP Calculator](/calculators/sip-calculator).
When to Exit
Don't exit during crashes (that's when SIP works best). Rebalance annually — if small cap allocation exceeds target by 5%+, trim to maintain allocation. Shift to large caps as you approach your goal.