{"id":22720,"date":"2021-10-28T05:27:56","date_gmt":"2021-10-28T05:27:56","guid":{"rendered":"https:\/\/www.tatacapital.com\/blog\/?p=22720"},"modified":"2024-05-06T07:14:33","modified_gmt":"2024-05-06T07:14:33","slug":"is-it-advisable-to-continue-investing-in-small-cap-funds-at-this-point-in-2021","status":"publish","type":"post","link":"https:\/\/tata-blog.osian.dev\/moneyfy\/investment-guide\/is-it-advisable-to-continue-investing-in-small-cap-funds-at-this-point-in-2021\/","title":{"rendered":"Is it Advisable to Continue Investing in Small Cap Funds At This Point In 2021?"},"content":{"rendered":"\n

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In the past few years, small-cap funds have amassed a great deal of popularity in the investment space. With over 100% returns in the last year itself, it\u2019s no wonder that they\u2019ve caught investors\u2019 attention. Being the most volatile out of all equity funds, small-cap funds can deliver massive returns. However, on the flip side, these funds have to wade through tricky market waters as well.<\/p>\n\n\n\n

So, with your portfolio already featuring large caps, multi-caps, and mid-caps, should you bother with small caps at all? Are they lucrative enough? Well, let\u2019s tackle all these questions and more. But before that, here\u2019s a quick refresher on small-cap funds.<\/p>\n\n\n\n

What are small-cap funds?<\/strong><\/h2>\n\n\n\n

Small-cap funds are open-ended equity funds that, for the most part, invest in small-cap stocks. As per SEBI, small-cap funds must invest a minimum of 65% of their assets in small-cap companies. Plus, these companies usually rank beyond 250 when it comes to market capitalisation.<\/p>\n\n\n\n

Performance<\/strong><\/h2>\n\n\n\n

Since small-cap companies are in their nascent growth stages, they have a long way to go before generating any consistent growth.<\/p>\n\n\n\n

With that said, small-cap companies perform explicitly well in a bullish market. However, a little nudge in the downward direction and their volatility gets more pronounced. Therefore, you, as an investor, must practice caution while investing in small-cap mutual funds<\/a>.<\/p>\n\n\n\n

Long-term investors have benefitted significantly by taking high-risk small-cap funds. In the last five years, small-cap funds have delivered a growth rate of 17.7%, which is better than large (14.1%), mid (16.0%), and multi-caps (11.6%). However, small caps have lagged behind other categories in the short term, given their high volatility.<\/p>\n\n\n\n

For instance, after a rollicking 2017, when NiftySmall50 delivered 59% in returns, it fell into the negative for the next two years, only to rally again in 2020.<\/p>\n\n\n\n

Additional Read: <\/strong>How to Manage Your Mutual Funds Smartly\/Wisely<\/a><\/strong><\/p>\n\n\n\n

Who should invest in small-cap funds?<\/strong><\/h2>\n\n\n\n

Given their volatility, it\u2019s best to invest in small-cap funds if you can stomach the higher risks. One way to mitigate volatility is to invest less. Commit no more than 5-8% of your portfolio to small caps. That way, you can rejoice at the returns and not feel too cheated if your investment underperforms.<\/p>\n\n\n\n

Also, you must be ready to cool your heels for the long haul (7-10 years) to weather out their volatility.<\/p>\n\n\n\n

Is now the right time?<\/strong><\/h2>\n\n\n\n

Talking about the future, in the coming years, government policies like production-linked incentives and increased focus on infrastructure will ensure broad-based economic growth. These developments should help small-cap companies achieve good profit growth.<\/p>\n\n\n\n

Also, with the rising stock prices and incremental investments by investors, 2021 is a great year to invest in small-cap funds.<\/p>\n\n\n\n

Additional Read: <\/strong>Multi-Cap or Flexi Cap which Fund is better suited for you?<\/a><\/p>\n\n\n\n

Final takeaway<\/strong><\/h3>\n\n\n\n

Small-cap funds are undoubtedly a fantastic asset class to diversify your portfolio and get robust returns. However, you need to approach the investment, keeping into account your risk profile and time horizon. If you\u2019re risk-averse, it\u2019s best to go for the long haul. If you can read the market like a book, a shorter term will suit you well.<\/p>\n\n\n\n

Also, since small caps are now in a post-pandemic rally, your mindset going into the investment matters. Don\u2019t invest if you wish to play the momentum or if you\u2019ve riddled with FOMO.<\/p>\n\n\n\n

Start investing in small caps today with Tata Capital\u2019s Moneyfy app<\/a> and multiply your savings with lucrative MF schemes. Choose an investment instrument as per your objectives and start reaping returns today!<\/p>\n\n\n\n

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Download Moneyfy App<\/a><\/div>\n<\/div>\n<\/div>\n\n\n\n
<\/div>\n<\/div>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"

In the past few years, small-cap funds have amassed a great deal of popularity in the investment space. <\/p>\n

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