The Power of Long-Term SIPs in Small Caps
A very insightful table shared by B Padmanabhan on X highlights how small-cap funds have performed over different market cycles. The analysis starts from February 2019, leading up to the COVID crash, then the strong post-pandemic rally, and now the recent dip in 2025.
Surviving the COVID Crash (Feb 2019 – March 2020)
Before COVID struck, investors who started SIPs in small-cap funds saw their investments take a heavy beating. If someone had invested ₹1.4 lakh over 14 months (₹10,000 per month), their portfolio value by March 2020 had dropped significantly, ranging from ₹87,000 to ₹1.2 lakh, reflecting deep cuts of over 30%. At that point, many investors would have been understandably nervous and questioning their decision to invest in small caps.
The Post-Pandemic Rally (Feb 2019 – Feb 2022)
Fast forward two years to February 2022, the same investor would have continued investing monthly, contributing a total of ₹3.6 lakh through SIPs. By this time, small-cap funds had not only recovered but had delivered phenomenal returns. The XIRR (Extended Internal Rate of Return) ranged from 28% to 63% across different funds. This period reinforced the importance of staying invested and continuing SIPs even when markets were in deep correction.
Current Scenario (Feb 2019 – Feb 2025)
Now in February 2025, small caps have once again taken a hit, with many stocks down by 30-50%. However, an investor who has consistently continued their SIP for six years has now contributed ₹7.2 lakh. Despite the recent correction, the XIRR remains strong, between 18% and 33%. This shows that over a full market cycle, disciplined SIP investing continues to generate impressive returns, even with interim market dips.
Key Takeaways from the Data
Markets will always be volatile, and sharp drawdowns will happen from time to time. However, regular SIP investing allows investors to accumulate units at lower prices during downturns and benefit from rallies when markets recover. This highlights why timing the market is nearly impossible and why staying invested for the long term is the best approach.
Anyone who started investing in 2019 could not have foreseen COVID, the post-pandemic rally, or the current correction. Yet, despite these unpredictable events, the long-term results have been rewarding. This serves as a reminder that successful investing is not about predicting market movements but about having the discipline to stay invested through all phases of the market cycle.
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