Thanks for posting your queries.
Small cap funds have not done well in last one year. The small cap index is down by around 20% since Jan,2018. This is mainly because of reclassification of funds and also due to negative sentiments which have been prevailing in the market. There is nothing wrong with Franklin India Smaller companies funds. This fund is one of the best funds in this category with low volatility. If you look at last one months performance this funds has fallen less when compared to its peers. The fund will give very good returns in long term. Redeeming Franklin corpus and reinvesting it in other small cap funds will happen at an extra cost[ 1 % exit load will be applicable on units which have not completed one year] which is unnecessary.
Since all your investments are in small cap funds only, your portfolio will remain volatile but in long term say 5-10 years , these funds will generate very good returns, you have to hold on to these investments in bad times.
Returns generated in funds which hold foreign shares are dependent on two factors. Firstly the performance of the shares which the funds holds, & secondly the exchange rate of the country.These two factors influence the performance. currently since last one year these two factors have helped in generating good returns as technology stocks of US has run up significantly and rupee has also depreciated significantly due to rate hike in US and crude oil prices. But these factors will not be supportive every time. If you look at long term return of the fund then it is not very great.
We should firstly build exposure in Indian Equity as in long term Indian equity will always give good returns. If you really want to build some exposure then we should not have more than 5% of our portfolio exposure in these funds . You should look at well diversified International Fund Such as Franklin India US Opportunities Funds.