New Delhi, Sept. 23 -- In recent years, mid- and small-cap funds have taken centre stage in investor conversations. Their returns have been eye-catching, and many portfolios now carry a meaningful allocation to these categories. But with the excitement comes an equally important question: how much is too much?

Why investors love mid and small caps

Over the past few years, the performance of mid- and small-cap indices has been striking. On a five-year basis, midcaps and small caps have compounded at 31% and 34% respectively, far outpacing the Nifty 50's 20% return (as of 25 June). Stretch the horizon to 10 years, and while the Nifty delivered 12%, midcaps and small caps compounded at 18% and 15%.

These numbers show why investors are dra...