If you are new to investing in mutual funds you may be overwhelmed by a lot of jargon. Terms like Small-Cap, Mid-Cap, Large-Cap are just a few that mutual fund investors need to be familiar with. In this story, we’ll understand what a small-cap fund is and what differentiates them from others.
August 25, 2020
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If you are new to investing in mutual funds you may be overwhelmed by a lot of jargon. Terms like Small-Cap, Mid-Cap, Large-Cap are just a few that mutual fund investors need to be familiar with.
You may even have heard your friends debate whether SBI small-cap funds are better than HDFC small-cap funds. Or perhaps even wondered if the growth of Reliance as a company directly impacts Reliance small-cap funds?
In this story, we’ll understand what a small-cap fund is and what differentiates them from others.
What Is A Small-Cap Fund?
Equity Mutual Funds can be broken down basis the size of the companies they invest in. Small-Cap Funds are therefore funds that invest in companies that have a market capitalization of under Rs.500 Crores.
These funds are required to invest a minimum of 80% of their assets in small companies as per the Securities And Exchange Board Of India. Besides the Rs.500 Crore market capitalization, these small companies can also be defined as those that are ranked 250 or lower in terms of market capitalization.
Who Should Invest In Small-Cap Funds?
Whether or not you invest in small-cap funds depends on your age, risk appetite, financial goals, and portfolio allocation. That means you should invest in small-cap funds if you are a long-term investor who is willing to accept higher risk for potentially higher rewards.
These funds are investing in small companies that have higher growth potential. That is why the returns can be promising but at the same time, as these companies grow bigger you stand to gain from their growth.
To tell you whether you should invest in Small-Cap funds a lot more information is required. You should never pick mutual funds to invest in on your own. Always consult a financial advisor or Wealth Coach for this purpose. You can also try Cube Wealth’s QuickSIP feature to check which funds suit your risk appetite.
Watch this video to learn more about building a perfect portfolio
Q. How Do Small-Cap Funds Work?
Ans. A small-cap fund invests in the stock of small-cap companies that are still developing and have a promising future. Since these companies are still developing, they carry high risk but are capable of yielding high rewards.
That's what a small-cap fund looks to tap into in order to generate returns for its investors. Small-cap funds are more volatile than large-cap funds but have the ability to generate better returns. Cube Wealth gives you access to the best small-cap funds in India for 2021. Download App For Free
Q. Which small cap mutual fund is best?
Ans. Best is a relative term and what is best today may not be the best tomorrow. That's why it would be wise for investors to seek advice from experts like Wealth First who recommend the best small-cap funds on the Cube Wealth. Here's a short snippet of these best small-cap funds:
on stock picking, poring over excel sheets, financial news, analyzing market trends, tracking the Sensex, researching company fundamentals, comparing mutual funds, reading financial reports, trying to predict the future & losing your sanity!