Best Small Cap Mutual Funds to Invest: According to ET, Small-cap mutual funds, which invest in very small companies, delivered returns of over 40.44% in 2023. In September 2024, these funds regained investors’ attention, attracting an inflow of ₹3,070.84 crore.
Despite the high valuations in the small-cap segment and recent market volatility, many investors believe that a correction may be imminent. Mutual fund managers and advisors acknowledge the rich valuations but suggest that investors can continue investing in small-cap funds for long-term wealth creation. Advisors recommend a staggered approach, as the segment has experienced significant growth in the past six months, allowing investors to benefit over the long term.
What are Small-Cap Funds?
Small-cap funds primarily invest in very small companies or their stocks. As per SEBI (Securities and Exchange Board of India) guidelines, small-cap funds must allocate at least 65% of their portfolio to companies ranked below 250 in terms of market capitalization.
Small-cap companies are generally more volatile than established mid-cap and large-cap companies. Due to their higher risk profile, small-cap funds are only suitable for aggressive investors with a high-risk appetite and a long investment horizon.
Should You Invest in Small-Cap Funds?
According to Economic Times report, Investing in small-cap funds involves significant risks, but these funds also offer the potential for high long-term returns. For instance, the small-cap category has delivered an average return of 19% over the last 10 years. However, to achieve such exceptional returns, investors must be prepared to endure high volatility and potential losses.
Challenges of Investing in Small-Cap Funds
1. Limited Information and Research: Many small-cap companies are under-researched and relatively unknown.
2. Management Risks: Company management may sometimes make exaggerated or false claims, and in some cases, market operators may artificially inflate stock prices.
3. Unpredictable Outcomes: Successful small-cap companies can deliver multi-bagger returns, but if a company underperforms, its stock may lose value rapidly, sometimes becoming worthless.
Investing in small caps requires a deep understanding of the market and the ability to identify skilled fund managers specializing in this space. It’s also important to evaluate how these funds have performed during market downturns.
Best Small-Cap Funds to Invest in November 2024
- Axis Small Cap Fund: Has been in the third quartile for the past 18 months.
- SBI Small Cap Fund: Consistently in the third quartile for the last seven months.
- Kotak Small Cap Fund
- Nippon India Small Cap Fund
Investing in these funds can help build wealth over the long term. Make sure to monitor the performance of these schemes regularly to stay updated.
