All About Small Cap Funds
05 Oct 2023
All About Small Cap Funds
Small-cap funds are mutual funds or exchange-traded fund (ETF) that primarily invest in stocks of companies with relatively small market capitalizations. These funds can offer investors exposure to smaller, potentially faster-growing companies.
10-Year Performance of Small Cap vs Large Cap
Features of small-cap funds
1. Focus on small-cap stocks
Small-Cap funds invest primarily (min. 65% of assets) in small-cap companies. SEBI defines small-cap companies as those which are ranked below the 250th rank in terms of market capitalization i.e. < RS 500 crores.
2. Growth potential
Small cap stocks funds offer potential for higher return. Small caps have considerable growth opportunities and can be future mid caps.
3. Market volatility
Small-cap funds can experience above-average volatility due to the smaller market capitalization of the underlying stocks. This makes them susceptible to price fluctuations and greater sensitivity from market news and economic factors.
4. Investment horizon
Investment horizon in small cap funds must be on the higher side vis-à-vis large caps funds. Small caps can take time before they deliver on growth / profitability, so come prepared for 5 years or more in small cap funds.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. The information provided is generic in nature and is for informational purpose only. Please consult your financial advisor before taking any decision.
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